Pension Crisis

Can You Spot a Trend in New Jersey's 10 Credit Rating Downgrades Under Christie?

Christie says he doesn't pay attention to credit ratings, but maybe he should have. They've been trying to tell him (and other states) something.


Anthony Behar/Sipa USA/Newscom

Since Gov. Chris Christie took office in 2010, New Jersey has seen its credit downgraded 10 times by the "big three" credit rating agencies.

The 10th downgrade took place last week, when S&P Global Ratings knocked the state's rating down another notch. Credit ratings are a rough way to judge the long-term fiscal soundness of a state's budget (only Illinois has a lower rating, according to S&P), but they mean more than that. As a practical matter, low credit ratings make it more expensive to borrow on bond markets and end up costing taxpayers more anytime the state needs to borrow.

Thanks to for rounding up a history of the downgrades during Christie's two terms in Trenton. The paper notes that the 10 black marks against the state's credit rating is a record for a single governor.

See if you can spot a trend (emphasis mine) in the following:

  1. February 2011 (S&P): "The lower rating reflects our concern regarding the stresses from the state's poorly funded pension system, substantial post-employment benefit obligations, and above-average debt levels."
  2. April 2011 (Moody's Investors Service): "These rising costs have been exacerbated by the state's long-history of underfunding its pension contributions, and most recently, cutting all or nearly-all contributions in FY2009 through FY2011."
  3. August 2011 (Fitch Ratings Inc.): "The downgrade…reflects the mounting budgetary pressure presented by significant and growing funding needs for the state's unfunded pension and employee benefit liabilities."
  4. April 2014 (S&P): "Almost five years after the official start of the economic recovery, New Jersey continues to struggle with structural imbalance." (In a statement about the downgrade, Christie's spokesman said "the rising costs of pension, health benefits and debt service" were to blame for that imbalance.)
  5. May 2014 (Fitch): "The downgrade…incorporates financial operations that have been challenged by overly optimistic revenue projections, a multitude of long-term spending pressures including significant unfunded pension and employee benefit obligations."
  6. May 2014 (Moody's): "Structural budget imbalance exacerbated by rapidly growing pension and OPEB ["other post-employment benefits"] costs."
  7. September 2014 (Fitch): "…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."
  8. September 2014 (S&P): "The downgrade reflects our view that New Jersey will face increased long-term pressures in managing its long-term liabilities."
  9. April 2015 (Moody's): "The downgrade to A2 was driven by the lack of improvement in the state's weak financial position and large structural imbalance, primarily related to continued pension contribution shortfalls."
  10. November 2016 (S&P): "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."

It's almost like the ratings agencies have been trying to tell New Jersey something.

"I don't pay a lot of attention to these guys," Christie said of the credit rating agencies in 2014 when asked about the eighth credit rating downgrade on the above list.

Seriously, though, the state's pension systems are a total mess. When Christie came into office in 2010, New Jersey was facing a $54 billion funding shortfall to pay for current and future retirees. He immediately set about tackling the problem—to his credit—and in 2011 the state passed a pension fund rescue plan that would have theoretically closed the funding gap within a few decades.

Since then, though, Christie's subsequent budgets have failed to meet the promises laid out in that 2011 plan, leading to credit rating downgrades and spiraling debt. Today, the state owes an estimated $135 billion in future pension costs.

Pensions are a problem almost everywhere, but few states are in as much trouble as New Jersey.

A recent report from S&P suggests that if all pension unfunded liabilities were divvied up between the country's whole population, every man, woman, and child in the United States would owe $800 to pay for public workers' retirements. That same report estimated that the per-person pension debt in the New Jersey is more than $10,600.

As the New York Post noted this week, New Jersey's $35 billion annual state budget is in no shape to fill the state's pension hole. Even after spending $1.9 billion on pensions this year (a record for the state), things are looking no better.

There may not be any way for New Jersey to save itself from this mess. Eventually, I suspect, the state will have to go to court and argue that it is unable to pay for the retirement promises made to its public workers. That's not going to be fun for anyone counting on a pension check from the state, but major cuts in benefits will not spare taxpayers from having to pay off a portion of the debt.

Other states can still avoid New Jersey's fate by undertaking reforms that move new workers into private retirement plans and by not shortchanging annual pension payments in order to spend money on other things.

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  1. Since then, though, Christie’s subsequent budgets have failed to meet the promises laid out in that 2011 plan, leading to credit rating downgrades and spiraling debt.

    Ah, the Illinois plan!

    1. Yeah I Iive in Illinois. Christie’s a slacker. We’re Number 1, We’re Number 1, We’re Number 1.

  2. NJ should package it’s debt into derivatives so that the ratings agencies can give them AAA ratings.

    1. Michael Lewis’s sequel about THIS crisis could be “The Big Fat”, amirite?

  3. To be fair: what portion of this mess is due to Christie vs. the legislature? I recall people blaming Gary Johnson for NM state spending growing fast during his tenure, despite him vetoing the heck out of the spending proposals and being overriden by the legislature.

    1. According to this, Christie has vetoed at least one bill that would actually have increased state contributions to the pension fund, presumably because it included new taxes to pay for it:…..016-budget

      1. New Jersey already has either the highest or second highest tax burden in the nation, so good for him for vetoing another increase to transfer more money to the public unions. It’s not within Christie’s power to undo all of the lavish pension give-aways the Democratic legislature is responsible for over the decades. Christie is an ass, but blaming this on him is just ridiculous.

        1. Bear in mind the likely shell game that is going on here: the legislature raids the pension fund year after year to pay for unrelated spending, then proposes a tax increase to replace the raided funds — and will likely raid even harder if the tax increase passes, because hey, more free money!!

          1. Exactly what they have been doing for decades. New Jersey just passed a massive gasoline tax increase because they needed it to replenish the transportation fund (which is funded by the gas tax) because they raided the transportation fund to spend it on other things.

            1. Yep – and the Legislatures were offended by the referendum question that forbids them from raiding the new revenue stream.

          2. Yeah, that’s the rub.

            Legislature: We have a statutory obligation to pay into the pension fund! We’ve appropriated the req’d amounts and passed a bunch of spiffy new taxes solely for this purpose.
            Governor: No, fuck you, cut spending. **Line item vetoes tax hike and linked spending appropriation**

            Christie can’t shift appropriations to the fund that weren’t earmarked for that purpose. His hands are tied by the legislature – if they really considered the pension to be a priority then they would make other things less of a priority.

            1. if they really considered the pension to be a priority then they would make other things less of a priority.

              So much this.

              The legislature raises funds to pay for pet projects and cronies. Paying for “necessities” (so to speak) is the bait-and-switch justification.

              Although, the pension is itself a bit of a pet project for the legislature. The aim of that project is to appease and buy the votes of the public employees and their unions.

  4. He immediately set about tackling the problem?to his credit?and in 2011 the state passed a pension fund rescue plan that would have theoretically closed the funding gap within a few decades.
    Since then, though, Christie’s subsequent budgets have failed to meet the promises laid out in that 2011 plan…

    C’mon man, you’re selling the guy short – the fucker actually successsfully fought off a claim that the state was contractually obligated to pay into the pension system what they were contractually obligated to pay into the pension system. And there was much rejoicing.

    The state Supreme Court, in reversing a lower court ruling, said while it lamented the “staggering” loss of public trust resulting from broken promises, the pension payment was not a contractual obligation entitled to constitutional protection.

    1. Well, when you have a law that violates the constitution, the obligation defined by that law is null and void.

      Per the SC:

      When the Legislature passed its FY15 Appropriations Bill, it included the full 4/7ths required ARC, or
      $2.25 billion. This was financed, in part, by companion bills establishing new taxes whose projected revenue
      streams were incorporated into the Legislature’s anticipated revenue for FY15. On June 30, 2014, Governor
      Christie exercised his line-item veto authority deleting, among other items, $1.57 billion of the State’s required
      pension payment from the Appropriations Act. In his line-item veto message, Governor Christie stated that he
      opposed raising taxes to pay for the budget deficit, that he eliminated the new revenues projected for new taxes as
      presented by the Legislature, and cited his constitutional responsibility to deliver a balanced budget as the reason for
      reducing the State’s FY15 contribution. The Legislature did not take action to override the line-item veto.
      Therefore, the 2015 Appropriations Act became law, subject to the line-item veto changes.

      1. Cont’d:

        Plaintiffs argued that, in enacting Chapter 78,
        the State undertook a contractual obligation to make the ARC payment to the pension system and that the State’s
        failure to make the full FY15 ARC payment constituted an impairment of that contract in violation of the Contracts
        Clauses of the State and Federal Constitutions. Plaintiffs requested that the court require the Legislature and the
        executive branch to adopt an appropriations act consistent with the contractual obligations outlined in Chapter 78.

        The State asserted that Chapter 78 could not create a valid contract right because it violated the
        Appropriations and Debt Limitation Clauses and the line-item veto provision of the New Jersey Constitution. Even
        assuming, but not conceding, that an enforceable contract right was created, the State maintained that it did not
        substantially impair that contract right. Further, again assuming but not conceding that substantial impairment
        occurred, the State submitted that its decision was reasonable and served a legitimate public purpose.

        HELD: Chapter 78 does not create a legally enforceable contract that is entitled to constitutional protection. 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.

        1. A law is not a contract. The state is obligated to make up to 4/7ths of the required total contributions to the pension fund unless doing so will violate constitutional provisions. Sucks for future pensioners (including me, through my wife), but the principle at play is correct.

          The state constitution supersedes any law passed by the legislature. And I bet Christie figured as much when he included that language and did so in order to get the Democratic legislature to agree on requiring teachers to actually start paying in to the fund for the first time ever.

          1. The US Supreme Court made a similar conclusion with respect to Social Security benefits.

            Despite what people have been indoctrinated to think, they do not a property right or legally enforceable contract to receive benefits as a quid pro quo for their tax payments. Any future Congress can cancel or amend benefits whenever it chooses.

            Sucks to be a NJ pensioner. Never trust an entity that has authority to lie to you and to steal from you because it will do so whenever it is convenient.

            1. While it’s true that SCOTUS has ruled that an individual has no property right to collect SS benefits even if they are “eligible” by some metric, I do wonder if they would carry through that reasoning if e.g. Congress decided to drastically curtail SS eligibility or eliminate the benefits altogether (not that the latter is ever going to happen).

              One wonders how rigorously Chief Justice “Pentaltax” Roberts would apply his “it’s not our job to save the people from ‘their’ political choices” mantra.

  5. I’m going to be a contrarian to the tone of this article — anything that makes it harder for a legislature to borrow money or funnel money to government labor unions is a good thing.

    Hell, if some state was prohibited from borrowing money at all, would anyone here think that was a bad thing?

    1. I was coming down here to post that, in fact, the state should not be allowed to borrow money at all. If the cornerstone of our democracy is that people aren’t taxed without being represented in the system in some capacity, it’s really hard to argue that what can only be described as intergenerational theft has any legitimacy.

      1. Very eloquently and rightly put!

        Sadly, the elderly seem to believe it their right to steal from the children and unborn (future taxpayers). At least that is how they reacted when I brought this truth (intergenerational theft) up in another forum.

    2. I don’t object to borrowing for capital projects – a bridge will last 50 years, so there’s no problem in financing it over 10 or 20, and those future taxpayers will get the benefit of the bridge. There should never be debt to fund operating expenses for a government, and the problem with debt for capital projects is that money is fungible.

      1. If a financed bridge will take 10 years to pay off, then why not require the legislature to put money into a fund for 10 years prior to building it, instead?

        (this reasoning may not apply to toll bridges, but most bridges do not have tolls)

        1. Good idea! And this would have the benefit of capping the budget too. As we have seen with nearly all gov’t projects, the costs balloon rapidly (as intended), such as with the Joint Strike Fighter and the California bullet train and so on.

  6. One wonders how the armed wing of retired government enforcers will react when their precious benefit packages collapse.

    1. I really look forward to finding out. One possibility, besides the obvious that they’ll want the government to make good on their gold plated pension plans, is that they get mad at the politicians running the government.

      And frankly since the legislature is controlled by Democrats, they are the ones mainly responsible. And I say this knowing full well that Christie fought against a payment into the plan claiming he was against raising taxes.

      Nevertheless, Christie, like all RINOs, just wants to appear to be more fiscally conservative than the Democrats, and IMHO he isn’t a fiscal conservative. But I do give him credit in the debates for pointing out that the politicians have already stolen all the Social Security and Medicare funds and spent them, rather than leaving it for expected payments later. It’s all posturing to get elected, not to fix the problem.

    2. I will find out firsthand, since I live in an affluent neighborhood filled with many wealthy retired firefighters who have salary-spiked their pensions. Can’t wait to see the gold-plated pitchforks they’ll break out.

  7. “I don’t pay a lot of attention to these guys,”

    And it shows.

    1. Doctors?



  8. How about this for a compromise: no state pensioner may receive payments from the state greater than the average salary of full-time workers. Certainly retired government employees — police officers, fire fighters, and other selfless public servants — would accept that as a reasonable compromise, no?

    1. Not a bad idea. But better would be to immediately convert all the defined benefit plans into 401Ks based on the amount of money in the pension plan now, giving all of them an immediate haircut including current and future retirees. This way the government must put in the money every payday for every worker into their individual 401ks. So it won’t be a problem in the future. And workers get to see they are paid with money, not promises. One thing it will also do, is force NJ to cut spending, now.

      I see a new Detroit, but much larger and close to NYC.

    2. I am confused. The current retired workers have already lost their cost of living and are now paying into their health benefits. Their contractual pension has been reduced substantially. Now you want to reduce the benefits of 20+ year teachers to an average of all current teachers? Why? They paid into the system for years. It would be fine if the legislatures and governors had actually paid in their obligation. Instead the government raided the pension for 20 years and now blames the teachers.
      How would you feel.if your life insurance decided it wasn’t gonna pay your wife the benefit because the company has misappropriated the funds? That is what Nj did to the teachers and cops and firefighters.

    3. No, that is still too high an amount.

      Keep in mind that these gov’t workers earned good and sometimes very high salaries while working.

      If you add on to that the average salary of full time workers as a pension, an amount that is already much higher than non-gov’t workers’ retirement income, then the gov’t workers are overall being paid probably double or triple what non-gov’t workers are making in total compenstation.

      Do gov’t workers provide services worth that much more than the private sector workers? Based on my experiences working with unionized bureaucrats, I would say HELL NO.

      I would be more inclined to support your compromise if it said, “no state pensioner may receive pensions greater than the median retirement income of private sector employees.”

  9. So a libertarian site is complaining that the state isn’t taking enough from it’s citizens in order to pay for the outsized contractual obligations of the past? Prog on Reason.

    1. Yes – In the state with possibly the highest tax burden in the country,

      1. Actually, the article said clearly, in the very last line, that other states should heed this warning and privatize their own pension plans, as well as handling current pension obligations maturely and responsibly (as opposed to kicking the problem down the road continually).

        Pretty much the opposite of what you think it’s saying.

        1. So the purpose of the article was just to slap down Christie? (Not that it’s a bad thing, but a bit disingenuous)

          1. It’s using him as an example of a situation to avoid. He, and the rest of the NJ government, had ample opportunities to do something about this before it led to 10 downgrades to their credit standing. Fires like this don’t put themselves out, they just get worse. Other states who might only be dealing with very small fires right now should take note.

        2. If the pension obligations have already resulted in substantial amounts of debt and are expected to continue accruing debt at such a rate as to warrant repeated downgrades of the state’s credit rating, then the “mature and responsible” answer is to slash pension obligations, including for those already collecting their pensions.

          1. That could very well be part of the answer. I suspect that it won’t be the ONLY thing that can be done, though. As the article and commenters pointed out, governments have a bad habit of raiding pension funds for pay for other things. The first step would be to not do that and actually treat the payments as something that needs to be done. If, after that, it’s still a train wreck waiting to happen, other tactics can be discussed.

            1. governments have a bad habit of raiding pension funds for pay for other things

              Regardless, some form of spending will have to be reduced, whether it’s other programs, the pensions, or some combination thereof.

          2. Just give them 401k’s and match the first 3 or 4% like the rest of us get. That alleviates the possible shenanigans by the state government and forces the state to fund their retirements in real time.

            1. I think the best, best solution by far is for both private and public employers to get out of retirement funding entirely. Give all workers a cash salary with no additional benefits (no health care, no retirement, no nothing) and let the workers decide whether they want to spend their money now or later or some mixture of both. And of course, no welfare bail-outs for the short-sighted people who blew their money in the short term without setting aside a dime for the long term.

              Of course, this cash salary would in nearly all cases have to be higher than the worker’s salary is now; let the labor market decide what the price of labor will be.

              1. If you think about it, employers offering retirement or health insurance benefits are basically buying labor on credit. They are getting more or better labor now in exchange for a promise of future payments (retirement) or actuarialized payments (health insurance–they are gambling on you to stay healthy and spreading the cost of risks across a pool).

                Better to pay right now for what labor they get right now.

  10. Leaving aside the issue of pensions, remember that Christie embraced Obamacare’s Medicaid expansion, leaving the citizens of NJ on the hook for 1.2 Billion dollars (this will likely be much higher).…..5e0934129e

    Forbes: Why Did Chris Christie Embrace Obamacare’s Expansion Of Medicaid?

    1. Because he’s a red governor in a very blue state?

    2. Giving the people what they want, good and hard.

  11. Good for Christie. The pension system in NJ is impossibly corrupt. I could care less if these people get paid or not.

    As many people above have noted, the NJ legislature has a habit of raiding funds – pension and transportation – to spend on useless vote-buying projects in the city. Then demanding tax increases to replace the funds they just wasted elsewhere.

    The 1974 New Jersey spent $2.6 billion. They are over $40 billion next year. Fuck them.

    Keep taxes down (to merely the 2nd highest in the country) the for a few more years before I escape this fucking state – after that I truly don’t give a shit.

    1. Actually total state spending was $10.5B in ’74. Then they passed an income tax and lit the spending rocket.


      1. Is there any state whose spending increases have not drastically outpaced inflation and population growth? The Federal government has set a bold model of “always make next year’s spending greater than baseline + inflation adjustment + population adjustment and just use debt to pay the shortfall” and most (all?) states have followed suit.

  12. yes the common theme is the previous governments of NJ…gave away outragous pension benfits and Christie is the only one trying to stop it! The Democrat owned legislators is bribed by the public unions to give them anything they want. Just talking with a 40 year old cop…retired with a pension of $80+k!

    1. $80+k is kinda low, at least by California standards. There are retired firefighters in my neighborhood who have retired with six-figure public pensions by using pension spiking techniques. It is a common technique amongst Calif. law enforcement.

  13. any word on when we go bankrupt?

    1. We can’t go bankrupt, we can still write more checks print more Federal Reserve notes!

  14. A fundamental question: why should politicians be lawfully permitted in the first place to make promises for benefits payable long after they are themselves gone, leaving others to pay the bill?

    Public pensions are Exhibit A in the public choice textbook. New Jersey is the perfect example. Throughout the 1970s to 1990s, State politicians fell all over themselves to promise pension enhancements in exchange for union support. We used to joke that every four years, corresponding with a recent gubernatorial election, the retirement age for police officers dropped and pension benefits increased. The state PBA made no secret that it was holding itself out to the highest bidder when it came to gubernatorial endorsements, and pension enhancements were the number one item on the wish list.

    You will regularly hear public employees in New Jersey complain that the state is reneging on its “commitment” to them. What they never mention is that this commitment was financed on the backs of those who had no voice in the negotiations but are now being asked to foot the bill, namely, taxpayers and residents.

  15. anytime the state needs to borrow.

    Fuck you, cut spending.


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