Fitch’s New Jersey Downgrade Actually Proves Christie’s Point

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Ben Smith wonders whether Fitch downgrading New Jersey’s bond rating – from AA to AA- – will end the Christie boomlet. It certainly sounds bad! And then you read Fitch’s rationale for the move.

The downgrade of New Jersey’s GO bond rating to ‘AA-’ from ‘AA’ reflects the mounting budgetary pressure presented by significant and growing funding needs for the state’s unfunded pension and employee benefit liabilities, particularly in the context of a weak economic recovery, a high debt burden, limited financial flexibility, and persistent structural imbalance. The credit rating, at the current level reflects its high wealth levels and broad economy, offset by a high debt burden and a multitude of spending pressures, including continuing capital needs, as well as significant unfunded pension and employee benefits obligations. Despite the recent passage of pension and benefits reform legislation, which will restrain future growth in the state’s accumulated liabilities, continued pension funding level deterioration is projected through the medium term as full funding of the actuarially required contributions is several years off, resulting in sizeable increases in annually required contributions. Fitch believes that meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long term challenges, such as property tax relief, school funding, and infrastructure needs.

This is what Christie’s been saying. (It’s what a lot of Republican governors have been saying.) The downgrade actually strengthens his argument in a way that the S&P downgrade of American bonds, with its explicit worries that Congress was preventing sensible reform, strengthened Obama’s argument.