Breaking News: Christie Makes It To Ten – And It’s All About Pensions

According to

New Jersey on Monday was hit with its 10th credit downgrade under Gov. Chris Christie, reflecting growing government worker pension obligations that are among the highest in the U.S.

Standard and Poor’s Ratings Services lowered the state’s rating from “A” to “A-“. The move comes after the rating agency Standard and Poor’s Ratings Services revised its outlook for New Jersey from stable to negative over concerns with the declining pension funding levels and rising retirement liabilities.

“We base the downgrade on our expectation that state budget pressures will intensify in future years,” analyst David Hitchcock said in a statement. “Recent events have added incremental out-year budget pressure, in our opinion, to what is already a sizable structural budget imbalance driven primarily by pension underfunding.”

Decades of underfunding have weakened the pension system, as have more recent poor investment returns. The fund lost 0.87 percent in the fiscal year that ended in June, based on unaudited figures, and investment returns in the year before were 4.16 percent.

As of July 1, 2015, New Jersey’s state and local pension funds have just 37.5 percent of the funding it needs to pay for future benefits. That is based on new reporting standards that require the state to project lower investment returns and had bleak consequences for the state’s estimates.

New Jersey’s state and local pension funds had slightly more than $217 billion in liabilities and $81.4 billion in assets, leaving it with $135.7 billion in unfunded liabilities, up from $113.1 billion as of July 1, 2014.

The gap between what the state actually pays in each year and what is recommended by actuaries to keep up with the piling obligations contributes to a so-called structural budget imbalance that S&P said is now equal to 13 percent of the state’s budget.

Christie’s Downgrades:

2/9/11 S&P Downgrade: AA- from AA

4/27/11 Moody’s Downgrade: AA3 from AA2

8/18/11 Fitch Downgrade: AA- from AA

4/9/14 S&P Downgrade: A+ from AA-

5/1/14 Fitch Downgrade: A+ from AA-

5/14/14 Moodys Downgrade: A1 from AA3

9/5/14 Fitch Downgrade: A from A+

9/10/14: S&P Downgrade: A from A+

4/16/15: Moodys Downgrade: A2 from A1

11/14/16: S&P Downgrade: A- from A

19 responses to this post.

  1. Posted by Anonymous on November 14, 2016 at 3:03 pm

    Never mentioned the piling up drawdowns ……


  2. Posted by Joel L Frank on November 14, 2016 at 3:22 pm

    This is the accurate findings of the mid 1970s when it comes to the NYC pension system. They have recovered because the pension formula has been watered down five times.


  3. John — I thought the relatively recent NJSC rulings basically said that the pensions aren’t general obligations of the State Govt. If that’s what the court said, then why does S&P care whether or not the state funds the pensions properly, because the pensions failing wouldn’t put the state into a state of ‘default’. Am I misunderstanding what the court said?–


    • Posted by Anonymous on November 14, 2016 at 8:23 pm

      Labor agreements make NJ pension funding a general obligation of the State of NJ.


      • Here’s the language from the Burgos ruling: “The Debt Limitation Clause of the State Constitution interdicts the creation, in this manner, of a legally binding enforceable contract compelling multi-year financial payments in the sizable amounts called for by the statute.”

        It seems pretty clear to me that it’s not defining even the State’s annual contributions to be a contractual obligation to workers/retirees, let alone any obligation to make up for any shortfall in the investment performance of the pension funds. My reading of Burgos is that it basically says that the State’s off the hook (i.e. public pensions not formally a general obligation).

        What’s your thinking?

        Burgos squib is at:, with full text at:


      • Posted by boscoe on November 15, 2016 at 12:11 pm

        Pension funding is not a general obligation of the state. In government finance, a general obligation is a promise to repay government-issued debt according to a fixed schedule and above and before all other calls on state revenue. New Jersey has issued no general obligation debt* to fund its pension systems, despite the fact that the huge shortfalls in state contributions to the pensions constitute an overwhelming future payment crisis — unless the courts decide otherwise. And remember that general obligation borrowing (bonds) must be approved by the voters in a referendum. In the legal sense, labor agreements have nothing to do with pensions, since the benefit structures are legislated rather than negotiated through collective bargaining and the funding itself is subject to the annual appropriations act (state budget).

        The reason that the ratings agencies pay attention to a state’s ability and willingness to fund its pension obligations is because it is invariably an indication of whether the state is experiencing fiscal stress, calling into question the state’s ability to both finance its ongoing budgetary obligations and service its debt. It is a signal that lenders (bond holders) will demand a higher return in exchange for exposing themselves to greater risk of non-timely repayment or actual default.

        * The Whitman administration’s 1997 issuance of $2.7 billion in Pension Obligation Bonds to fund the pension systems was also not a general obligation debt issuance and was not submitted to the voters for approval.


        • I understand your point about pension-funding probably being a pretty good signal of overall fiscal health.

          But as a legal matter, if one day in the 2020s a NJ State pension fund misses an expected payment to retirees, isn’t one of the affected retirees likely to sue the State saying that the payment is a contractual obligation of State Govt, pointing toward a past labor agreement? And isn’t the State likely to argue in response that paying previously-promised pension benefits isn’t an enforceable obligation, since the Burgos ruling said that the State was unable to enter into an enforceable contractual relationship for long-term liabilities that walk, talk and quack like ‘debt’?

          (I’ve outlined this scenario strictly as a legal matter, leaving aside the possibility of the State simply deciding to pay the pensions out of good will).


          • Posted by boscoe on November 15, 2016 at 11:27 pm

            Responding to NY:
            I absolutely believe that if even one pensioner doesn’t receive his/her promised retirement allowance in full, there will be multiple lawsuits filed against the state. And since it isn’t very likely that only one person would be affected, I would expect it to be a class action lawsuit or a lawsuit in which at least one of the litigants would be a public employee/teacher union. I think the grounds for the filing would be as you stated: that a contractual obligation exists based on the terms of employment at hiring. I don’t think that a claim would be based on a prior labor agreement for two reasons: (1) in NJ unions do not technically “bargain” for retirement benefits (unlike, say, health benefits or salary which are within the scope of bargaining); and (2) a fairly large number of state employees are “exempt” employees, not represented by any union, but they get the same pension benefits as any other employee in their general employment category.

            There is a subtle but very real difference between an obligation to adequately fund a pension system with annual contributions, and an obligation to actually pay a pension to a retired employee. I think the NJ Supreme Court recognized this in their Burgos decision but conveniently denied any consideration of the latter. It was a narrow decision, based solely on whether the 2011 state law that required a build-up to full funding was constitutional. The court said no based on the debt limitation clause of the state constitution. “Importantly, on this strictly legal question pertaining to a statutory financing scheme, the court had no occasion to consider whether the State’s commitment to pay retirement benefits when due is a valid and binding contract and whether its failure to pay would constitute a violation of the federal or State Contracts Clause. The language of the decision,and the court’s repeated emphasis on the narrow question before it, suggests that it remains, at the very least, an open question.” (Strook Reports–Public Employee Law; Summer 2015; “Protecting Pensions and Contract Rights for Public Sector Employees,” p.2)

            So the can has been kicked down the road. The court has been able to postpone a decision on the really important question of contractual rights and obligations until the first state pension fund runs out of money, probably within the next 10 years if not sooner. If I were on the NJ Supreme Court, I would prefer to be retired myself rather than make that ruling. But perversely, it will probably be irrelevant what the court decides, because the state will not be able to pay pensions at the promised rate and some form of “bankruptcy” procedure waiting list will be implemented notwithstanding that a state cannot declare bankruptcy.

            Just my opinion.

          • In reply to Boscoe: Interesting analysis. Re: your last paragraph, I think a plausible alternative to allowing the state govts of NJ/CA/etc. to go bankrupt (or de facto ‘bankruptcy’ that’s called something different) is for the Fed to essentially print money to pay public pensions. The overarching story of these pensions is the unwillingness to face hard choices or even acknowledge that they exist, and this would be the ultimate cop-out, particularly if it’s imposed without a vote in Congress–

  4. Posted by Anonymous on November 14, 2016 at 8:10 pm

    This will be added to his resume.


  5. Posted by Anonymous on November 14, 2016 at 9:36 pm

    Donald Trump said Christie is a 10


  6. I’m wondering how this will now effect the backdoor borrowing that Trenton can now do because of the Ballot question 2 being voted a YES. I just don’t understand why these politicians will not bite the bullet together and resolve this NJ debt crisis once and for all.


    • Posted by PS Drone on November 15, 2016 at 5:19 pm

      The only way to “resolve” the crisis is to sell assets and apply the proceeds 50/50 to outstanding debt and the pension shortfall. This of course would have to be prefaced by a mandated advancement in the earliest benefit age (for pension payments to begin) to age 66 and a cap on how much any recipient can receive to $60K per annum. The assets to sell (in order of priority): NJ Transit, NJ Sports and Exposition Authority, NJ Medical and Dental School, Garden State Parkway.

      But I know too well that none of the foregoing will ever be accomplished by any of the liars/thieves that run this State. So we might as well hunker down and wait for the inevitable collapse/State bankruptcy and the wailing from the public sector drones who get stiffed out of their overly generous (understatement acknowledged) pensions.


      • You’d have to pay any non-political buyer to take NJ Transit off the state’s hands (i.e. its fair market price as an ‘asset’ is zero) based on the fact that it doesn’t turn a profit–


        • Posted by PS Drone on November 16, 2016 at 10:10 pm

          I would imagine if a private sector owner/operator could be found, the reduction in ridiculous labor costs that would immediately ensue (along with suitable increases in fares) might enable a profit to be found somewhere. It is the fact that it is run and populated by public sector bureaucrats/employees that causes the poor operating results.


      • Posted by boscoe on November 16, 2016 at 12:07 am

        Good luck with finding a willing arms-length buyer for NJ Transit. Can you think of one metropolitan commuter bus/rail line that turns a profit? In fact, NJ Transit was created because private bus and rail lines were going bankrupt (you may remember when Public Service; i.e., now PSE&G, was the largest bus company in the state.) Moreover, the state, through NJ Transit, subsidizes the remaining private commuter bus lines. Likewise, the NJ Medical and Dental School is actually part of Rutgers University, so the state can’t easily sell it even if Seton Hall, which is set to start its own medical school, might be interested. The NJ Sports and Exposition Authority carries a ton of debt (paid off by the state of NJ) and its most valuable “assets” were privately built (Giants Stadium, Prudential Center). Many many legal entanglements. The GSP is a possibility, although it too carries a lot of debt.


  7. Posted by Eric on November 20, 2016 at 9:34 am

    Of course the $81.4 billion asset figure has already been reduced to $73.27 billion by the NJ Department of the Treasury’s most recent posting.
    The number, as you so astutely stated,assumes that the “alternative investments” are actually worth what the state is alleging. Fat chance!
    Way to go Christie! He can’t wait for Trump to “beam him aboard.”
    Transporter room, “Energize!”


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