Despite assurances that New Jersey officials will close a projected $2 billion budget gap for fiscal 1996, rating agency officials say they are closely monitoring the state's credit outlook.

To be sure, no agency executive has even hinted at a possible downgrade of New Jersey, one of the country's highest-rated states. But Gov. Christine Todd Whitman's plans for cutting taxes further and the possibility of a downturn in the state's economy have some rating executives concerned about the fiscal 1996 budget, which begins July 1, 1995,

"Everyone's been aware that '96 will present a challenge to New Jersey," said Claire Cohen, executive vice president at Fitch Investors Service, which rates the state's general obligation bonds AA-plus.

In recent days, the Whitman Administration has asked cabinet officials to begin developing their fiscal 1996 budgets with the intent to "squeeze economies out of the system," said Carl Golden, spokesman for the governor.

News reports have quoted administration officials as saying that department cuts for fiscal 1996 need to total about 15% of the fiscal 1995 budget. Golden insisted those numbers are not on target, but he would not provide details on the governor's budget balancing plan.

The Whitman Administration is also attempting to downplay the fiscal significance of the governor's tax cut plan, which included last May's 5% reduction in income taxes and an additional 5% cut scheduled to take effect Jan. 1.

Golden said that the governor's tax cuts are not driving the budget gap, built-in expenditures are. He cited $400 million in debt service costs on a refinancing of New Jersey Sports and Exposition AuthOrity debt, $180 million in court takeover costs, and unknown amounts to equalize funding among rich and poor school districts.

Nevertheless, some Wall Street bond raters remain concerned about the state's credit outlook.

The state's plans for multiyear tax cuts "combined with expense pressures will warrant a continuing monitoring of the rating," said George Leung, vice president and managing director of state ratings at Moody's Investors Service. The agency rates New Jersey's bonds Aal.

Leung also cited New Jersey's continued reliance on so-called one-shots in its fiscal 1995 budget, which Moody's said in a credit comment has increased the state's vulnerability to unanticipated events or future economic downturns.

However, Golden said, the state has relied less on one-shots than previous administrations did, and plans to continue the trend.

Despite the raters' concerns, Golden said Whitman remains "committed to her campaign promise to cut income taxes 30% by the end of her first three years in office." But "tax cuts will be made according to budget context," Golden said.

The administration is also considering a cut in the telecommunications tax, Golden said.

The state also faces budget stress due to a court order mandating equal school spending among rich and poor districts by 1997. The state plans to begin the program in its fiscal 1996 budget.

One rating agency expressed confidence that the state would balance its fiscal 1996 budget.

"We expect a lot of rhetoric" between now and the time the budget is passed, said Hyman Grossman, a managing director at Standard & Poor's Corp., but "we expect the state to balance its budget." Standard & Poor's rates the state GOs AA-plus.

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