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.