Moody's Investors Service cut New Jersey from its ranks of elite Aaa credits yesterday, shaving its rating a notch to Aa1.
The rating agency said it downgraded the state because of "a pattern of reliance on nonrecurring measures to achieve budgetary balance, four years of financial operations marked by revenue shortfalls and operating deficits, and the likelihood that serious financial pressures will persist."
The move affects $3.3 billion of outstanding general obligation debt.
New Jersey lost its AAA from Standard & Poor's Corp. last summer, when the rating agency moved New Jersey to AA-plus. Fitch Investors Service still rates New Jersey AAA, but that assessment is under review.
Since 1989, economic slowdowns and then the recession have forced New Jersey to cut spending dramatically, raise taxes at an unprecedented rate, and draw down what were once substantial surpluses. The rating agencies maintained their triple-A assessments through much of the turmoil, but another year with more of the same appears to have been too much for Moody's.
"Reliance on non-recurring measures in the budgets enacted for fiscal 1992 and again for 1993, along with expected growth in spending, will produce a sizeable budget gap requiring resolution in fiscal 1994," Moody' said in a release. "This will come at a time when pending elections could make it even more difficult for the state to address, on a substantive basis, the significant budgetary issues which it faces."
Steven Hochman, assistant director of state ratings at Moody's Investors Service, said that the state's reliance on one-shots was the agency's biggest concern. He pointed to New Jersey's accounting change involving its pension fund assets that will reap more than $700 million and accelerating utility tax collections that add another $400 million for 1993. This, combined with last year's $1 billion of one-shots, signaled a pattern that was inconsistent with a triple-A.
In addition, the bill for this year's one-shots will come due in fiscal 1994, when Gov. Jim Florio and many lawmakers are up for reelection. "That will tend to make it more difficult for the parties involved to compromise," Mr. Hochman said.
Despite the highly publicized budget problems in recent years, which included an unprecedented budget veto from Gov. Florio that was eventually overturned by the Legislature, New Jersey's credit remains stronger than many in the Northeast.
"New Jersey's broad-based economy, high wealth levels, and moderate debt ratios continue to form the basis of its credit strength," Moody's said.
State Treasury Samuel Crane said yesterday that he was pleased that Moody's still considers the credit strong. He added, "I am disappointed by the loss of the top credit rating from Moody's, but I am encouraged that New Jersey still has the highest ranking among the northeastern states and is ranked among the 10 best-rated states in the country in these difficult economic times."
New Jersey Democratic leaders yesterday blamed Republicans for the downgrade.
"The disingenuous sales tax rollback continues to exacerbate the state's dire fiscal problems," said Assemblyman John S. Watson, D-Mercer, referring to a $600 million rollback the Republican-controlled Legislature approved this year. "Time after time, we asked how they planned to balance the new state budget that eliminated $600 million in sales tax revenues. Every time Republicans replied that they had a plan that would not jeopardize the state's bond rating.
Sen. Robert Littell, the Republican chairman of the Senate's Budget and Appropriations Committee, responded that Gov. Florio presented a budget in January that was over $1 billion out of balance and "deliberately decertified tens of millions of dollars in revenue, which further destabilized New Jersey's fiscal condition."
With New Jersey off the Aaa list, just eight states can boast a gilt-edged rating from Moody's: Georgia, Maryland, Missouri, North Carolina, South Carolina, Tennessee, Utah, and Virginia.
Moody's yesterday also assigned ratings of A1 to New Jersey's upcoming $61 million certificates of participation deal, which is expected to be sold later this week. The state has agreed to make payments on the certificates equal to debt service requirements, but the payment are subject to an annual appropriation by the Legislature.
Moody's also confirmed its Aa rating on state contract bonds from the New Jersey Sports and Exposition Authority, which is expected to sell a $14.3 million deal later this week.