Another Downgrade

Another downgrade of New Jersey’s debt and Fitch blames pensions and OPEBs that the state is incapable of fixing, freezing, or funding.

Fitch’s official explanation

GO RATING DOWNGRADE: The downgrade to ‘A’ of New Jersey’s GO bonds incorporates the absence of long-term, fiscally sustainable solutions to close identified budget gaps in fiscal years 2014 and 2015. Following significant revenue underperformance, the state relied upon the repudiation of its statutory contribution requirements to the pension systems to return to budgetary balance, exacerbating a key credit weakness. The resurgence of sizable one-time measures to balance its operating budgets at a time of economic recovery, driven by past overly optimistic revenue forecasts and maintenance of extremely narrow financial reserves, illustrates the fiscal pressure the state faces. New Jersey’s economic performance continues to lag that of the nation and a multitude of long-term spending demands are expected to prolong the achievement of sound financial operations.

The pension numbers

For the public employees’ retirement system (PERS) and the teachers’ pension and annuity fund (TPAF), as of July 1, 2013, system wide reported funded ratios were 62.1% and 57.1%, respectively. Using Fitch’s more conservative 7% discount rate assumption, the plans were 56.5% and 51.9% funded, respectively. As of July 1, 2013, the state portion of pension liabilities for PERS was 46% funded on a reported basis, or 41.8% using Fitch’s more conservative 7% discount rate. On a combined basis, as of July 1, 2013, New Jersey’s net tax-supported debt and adjusted, unfunded pension obligations attributable to the state, as adjusted for a 7% return assumption, totaled 16.5% of 2013 personal income, well above the 6.1% median for all U.S. states.

The Hope

The governor has recently convened a special pension task force to propose options for additional pension reform. In delivering the budget proposal to the legislature, the governor acknowledged the sizable and increasing burden of pension contributions and recommended that additional, as yet unspecified, reform measures be considered in the current legislative session.

A pension panel set up on August 1, 2014 was given 60 days to deliver its report with a status update in 30 days.  Don’t count on it.

20 responses to this post.

  1. Posted by Pauk on September 5, 2014 at 7:27 pm

    And where is the governor? In Mexico crowing about his landmark bipartisan pension (look up his day one speech, incredible) while his sycophant lawyers are calling the reforms unconstitutional. He said it in February, he does not have to worry about New Jersey anymore.

    Reply

    • Posted by Tough Love on September 5, 2014 at 8:01 pm

      And where is the bought-off Democratic Legislature …. which REFUSES to freeze (or VERY materially reduce) the pension accrual rate for the FUTURE Service of all CURRENT workers ?

      Reply

  2. Posted by Anonymous on September 5, 2014 at 7:35 pm

    If Harold’s Pub closes, Christie Christie will go into a severe depression.

    Reply

  3. Posted by bpaterson on September 5, 2014 at 7:56 pm

    its like death by a thousand cuts. We all should know the future outcome by now. CC is delusional thinking he is correcting the financial problems of the state, daily facing the huge resistance and thwarting by other politicians owned by the special interests and those who rode this tide for years; or maybe he is trying to convince himself expecting that the same dumb gullible residents who bought the state politicians BS for the last 20 years will remain dumb and gullible. We are all waking up and some resolution must be made by everyone. He’s the one who gave us the revelation. Cut entitlements?, cut services?, cut expenditures? or make those pay who use. It sure seems that the ones paying for every myriad and tepid service are not the ones using them. Does that make sense?

    Someone had to be left holding the match when it hit the fan. This could be it. Fortunately for us regular joe taxpayers he is pretty much on our side. No one else is man enough or has the leadership qualities like he does in our deteriorating state. All I keep hearing from any opposition forces is “raise taxes, raise taxes”. On the already highest taxed state in the nation, again, does that make any sense??

    I certainly wish him well, hope he stays to the end of his term instead of jumping to the presidential campaign route. What little he’s been doing successfully, he’s still the only one stemming the tide of the imminent financial ruin. Good luck to us all in the next 3-4 years.

    (Anyone- please answer those queries)

    Reply

  4. Posted by Tough Love on September 5, 2014 at 7:57 pm

    Quoting ………. “For the public employees’ retirement system (PERS) and the teachers’ pension and annuity fund (TPAF), as of July 1, 2013, system wide reported funded ratios were 62.1% and 57.1%, respectively. Using Fitch’s more conservative 7% discount rate assumption, the plans were 56.5% and 51.9% funded, respectively. As of July 1, 2013, the state portion of pension liabilities for PERS was 46% funded on a reported basis, or 41.8% using Fitch’s more conservative 7% discount rate. ”

    Notice that Fitch restates the funding ratio by using a Discount Rate of 7% vs the “official” NJ Plan Discount rate of 7.9% … and doing so reduces the “officially” published (and quite LOUSY) funding ratios by about 10%.

    But …. many financial economists believe that Fitch’s 7% is still WAY to high. In fact, Moody’s recalculates the Official funding ratios using the “Citibank Pension Liability Index” which is now hovering around 4.25%. If the “official” NJ funding ratios were recalculated using Moody’s procedure (which they employ to evaluated Gov’t entity credit worthiness) the “official” funding ratios would not just decrease by 10% but by over 30% to a level in the low 40%s and high 30%s….. and with the State’s portion in the low 30%s. That’s “Death Spiral” territory.

    Details:

    http://www.segalco.com/publications-and-resources/public-sector-publications/bulletins/?id=2353

    http://yieldbook.com/f/m/pdf/citi_indices/GP1405-00124.1_docs_indx_fact_CFII_CPLI_052814.pdf

    Reply

  5. Posted by Titon7 on September 5, 2014 at 8:35 pm

    He is not on our side. He is bought and paid for. If you can attend a 10k fundraiser you count. He is not satisfied with kicking the can down the road, he is trying to blow up the road. We will be dealing with the fallout of his financial mismanagement for decades. Read the tea leaves. He is not looking to be president. He is looking to host a political news show for huge bucks. He craves celebrity. Pretending to run for president just raises his celebrity status and his paycheck. In 1975 NJ passed a state income tax and took the responsibility for the 5% contribution for each teacher. They cannot fix the problem that they all (democrat and republican) created. If you gave John ,TL and anonymous 15 minutes in a room alone they would come up with a better plan than the governor, legislature or the faux bipartisan commission. No one knows how this will end except it will be bad for all involved. Disclaimer- I am not a teacher or related to one. I do find it amazing that the teachers and other employees are blamed when the contributions were not made. If the contributions were made and the state was going broke I could understand the hostility.

    Reply

    • Posted by Tough Love on September 5, 2014 at 9:29 pm

      I wouldn’t call it “hostility”, but strong advocacy for change … change must address the ROOT CAUSE of the problem …. that he promised pensions and benefits are grossly excessive, as evidenced by the fact that they are always AT LEAST 2x greater in value at retirement than the pensions of comparable Private Sector workers making the SAME pay, retiring at the SAME age and with the SAME years of service.

      Reply

      • Posted by Anonymous on September 6, 2014 at 6:15 am

        I would call it an obsessive distortion and denial of the facts. Period! And no matter how many times she repeats her lies that doesnt make them true.

        Reply

  6. Posted by Javagold on September 5, 2014 at 9:34 pm

    This state is finished. The corrupt just don’t know it yet.

    Reply

  7. Posted by dentss D on September 6, 2014 at 12:51 pm

    Corzine could have got us out of this mess …….And I know how .

    Reply

  8. Posted by Anonymous on September 6, 2014 at 2:36 pm

    Corzine would have sold the turnpike. Christie may sell his shares in Crispy Creme and Nathans

    Reply

    • Posted by Tough Love on September 6, 2014 at 3:55 pm

      That’s what I thought you were going to say.

      Sorry, but the State’s capital assets belong to ALL of it’s citizens, NOT just to Public Sector workers.

      Their grossly excessive, unnecessary, unjust, and unsustainable pensions ONLY EXIST because their Unions BOUGHT our elected officials’ votes to grant them with campaign contributions and election support.

      The PROPER and JUST response is for material reductions in the promised pensions & benefits for all CURRENT (and retired if need be) workers …. NOT a sale of State assets that belong to ALL of NJ’s citizens.

      Greed HAS consequences.

      Reply

  9. Posted by Richard on September 6, 2014 at 4:17 pm

    If governments are allowed to break pension contracts because they don’t feel like paying the costs, then the bond holders are in the cross hairs too.

    Reply

  10. Posted by Anonymous on September 6, 2014 at 4:32 pm

    TL doesnt give a crap about bond holders, she only cares about herself,

    Reply

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