On Friday, August 5th; the rating agency Standard & Poor decided that the debt ceiling deal barely agreed upon on August 2nd was not satisfactory enough to their liking. The rating agency thus decided to downgrade the nation’s credit rating from the highest level of “AAA” to “AA+”. The United States since 1941 has maintained the “AAA” rating through wars, depressions, and past political partisanship battles. However, ideologues in both parties; especially those on the far right dragged the matter out too long with a final resolution that was deemed empty at the end of the day.
After that decision, Governor Chris Christie and state Treasurer Andrew Sidamon-Eristoff looked to put New Jerseyans a bit at ease; if at all. The initial impact of much of the negative effects of the debt ceiling debate and fallout along with the credit downgrade was expected be minimal for the state.
However, now it looks a little more bleak for the state than initially believed. The credit rating agency Fitch has decided to lower the state’s general bonds. Standard and Poor’s criticism of the national debt ceiling deal mostly revolved around not enough proper cuts with a few additional items. For Fitch, the biggest glaring reason for their lowering of the New Jersey’s general bonds was unfunded pension and employee benefit liabilities. That exact matter was addressed in June with the pensions and benefits reform package passed largely through the work of Senate President Stephen Sweeney (D-3) taking the good parts of Christie’s initial proposal and putting them in a compromised agreement that got mostly Republican votes.
According to the credit rating agency,
“(Christie’s commitment to an increased pension payment will) conflict with other long term challenges, such as property tax relief, school funding, and infrastructure needs. The state’s budget remains structurally imbalanced inclusive of unfunded pension contributions. Reserve balances are expected to remain narrow, offering limited flexibility to absorb unforeseen needs.”
New Jersey did have a “AA” rating, but will be now downgraded to a “AA-” rating.
Just as recently as last week, Christie and top economic officials in the state have been in communication with credit rating agencies like Fitch to persuade them to not downgrade, but upgrade their general bonds after the recent budget and especially the pensions and benefits reform package; both passed in June.
“It (the proposal for an upgrade) was received very well by the agencies.”
This is the second downgrade this year after February when Standard & Poor downgraded the state’s general bonds for similar reasons as Finch’s downgrade. At the time, Christie footed the blame at the doorstep of Democrats in Trenton for not addressing public employee pensions and benefits.
Like then, Christie did not miss an opportunity to put the bulk of the blame for another downgrade in the lap of the state’s Democrats. As Christie stated,
“The sky started to fall in today. You’ve already seen this morning what the Legislature’s inaction has cost the state of New Jersey.”
Christie cannot completely escape blame because he at times preferred conflict instead of progress and change that could realistically work in Trenton. However, like the Standard & Poor decision for the nation; Fitch’s decision might be more based on speculation than actual potential results. Instead of waiting and seeing how the June reform works and what it does for the state’s budget and deficit; they chose to punish the state for past mistakes instead of focusing on the change that finally occurred after months of gridlock on the matter.
Time will tell what two downgrades in less than a year does in terms of how the state operates by itself and with other states. Now more than ever, Christie and state Democrats need to halt some of their partisan attacks and focus on how to make the state economically sound.