Standard & Poor's Corp. yesterday placed $5.5 billion of New Jersey debt on negative CreditWatch, warning the state that swelling budget gaps could mean further credit deterioration.

The rating agency was the first to cut New Jersey from the ranks of gilt-edged issuers last July, when it dropped its assessment to AA-plus from AAA because of ongoing budget difficulty.

Both Moody's Investors Service and Fitch Investors Service rate New Jersey triple-A.

Standard & Poor's said New Jersey's rating would fall again "unless the state adopts a prudent financial plan and bridges the emerging gaps without resorting to additional one-time measures."

The agency also said, however, that the rating is likely to stay in the double-A range.

The CreditWatch designation applies to $3.4 billion of outstanding general obligation bonds and $1.3 billion of certificates of participation and other lease-backed debt. Another $785 million of New Jersey higher education bonds were placed on CreditWatch because they are heavily dependent on state support.

State Treasurer Samuel Crane said yesterday he was "not surprised" at the rating agency's action.

"It is obvious that Wall Street shares the same apprehension and uncertainty that the people of New Jersey have about the absence of a budget plan," Mr. Crane said. "We hope to see a plan from the Legislature that will protect New Jersey's fiscal integrity without doing harm to the vital services relied upon by the state's residents."

A spokesman for Gov. Jim Florio said the governor feels he has submitted a budget proposal that satisfies the needs of Wall Street and the state, and he hopes the final product from the Legislature will do the same.

Although budget problems have been mounting recently, the spark that ignited the Standard & Poor's action was this week's surprise announcement that the state's ballooning budget gap had jumped yet another $450 million. The federal Health Care Financing Administration on Tuesday denied New Jersey's request for that amount in retroactive Medicaid reimbursements.

About $380 million of the request was earmarked to balance the fiscal 1992 budget and the rest was to be used next year.

"HCFA's decision greatly compounds the challenge to close the fiscal year with adequate financial reserves toward the new fiscal year beginning July 1," Standard & Poor's said.

The rating agency noted that New Jersey plans to appeal the Medicaid decision, but a resolution is unlikely before the start of the 1993 budget year.

An even bigger budget hole opened up last month, when the Republican-controlled Legislature fulfilled a campaign pledge to cut the state sales tax to 6% from 7%, slashing $608 million from state coffers. Mr. Crane said yesterday that action "severely aggravated the already difficult economic conditions resulting from the national recession."

On top of those problems, the treasurer last month said lower-than-expected tax collections had created a combined $652 million shortfall for 1992 and 1993. About $340 million of the gap appeared in fiscal 1992, but various executive actions by the governor apparently solved the problem, according to Standard & Poor's. Those actions left about $450 million as a yearend fund balance, but this week's Medicaid ruling wiped that out entirely.

"This will be the third year in a row where they don't have a fund balance," said Robert B. Edmiston, a director at Standard & Poor's. "That's not the type of performance one would expect from a AA-plus credit."

Mr. Edmiston said the rating agency will be watching closely the results of the Legislature's attempt to close thee gaps this month, and would frown on any more attempts to use nonrecurring revenues to solve fiscal problems.

"We're looking for them to address the structural problem," he said.

Claire Cohen, executive managing director at Fitch, said downgrades are typically not the result of particular budget difficulties themselves, but rather the result of "fundamental changes" in the way a state deals with them.

"It would be a fundamental change if what they do is choose to lower taxes without an appropriate compensatory action," Ms. Cohen said.

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