Christie's final budget, and no repair for worst-in-U.S. pension
(Bloomberg) – Chris Christie, a Republican with less than 11 months left as New Jersey’s governor, must find a way to balance his final state spending plan after cutting taxes, pledging a higher pension contribution and disclosing a revenue shortfall.
Voters are beyond skeptical. As Christie prepares to give his budget address on Feb. 28, the one-time political star and presidential hopeful has approval from just 17 percent of his constituency, the lowest rating for any governor in any U.S. state in more than 20 years of surveys by Quinnipiac University.
For much of his second term, the 54-year-old has put his focus beyond New Jersey, whose recovery has lagged behind the nation’s, and whose credit rating is now worse than every state except Illinois’s. Despite vows to restructure an employee-benefits system on track to swallow 27 percent of state spending by 2022, the fix for the worst-funded U.S. public pension likely will be his successor’s burden.
“He’ll look at this as his last bully pulpit and then get out of town as fast as he can,” Assemblyman Gary Schaer, a Democrat from Passaic who heads his house’s budget committee, said of the governor’s speech.
Christie has said he’ll include a $2.5 billion pension contribution, a record. Still, that’s about half the most recent actuarial recommendation for the system, which has a $135.7 billion shortfall.
Hammered by the national recession, lackluster revenue and the nation’s highest property taxes, New Jersey under Christie embraced tax breaks and loosened regulations in a bid to attract stable, high-paying employers. The strategy has yet to catch as Rutgers University economists in November warned of rising unemployment in 2017, and 10-year job growth at less than half the U.S. rate.
On Nov. 14, seven years after Christie was elected, the state was handed its 10th downgrade from the three major credit-rating companies, for the most under a New Jersey governor. S&P Global Ratings cut one step, to A- from A, the fourth-lowest investment grade, citing the pension debt’s pressure on the current $34.5 billion budget. It assigned a negative outlook.
“Even without a downturn in revenues, natural revenue growth has not kept pace with rising costs, and priorities other than pensions such as education, Medicaid, debt service, and other post-employment benefits also contribute to the fiscal 2017 structural imbalance,” S&P analysts David Hitchcock and John Sugden wrote.
Investors are demanding higher interest from New Jersey than from states with better credit. New Jersey’s 10-year bonds yield about 3.8 percent, or a full percentage point more than those on benchmark securities. That premium, or spread, is near the record hit in 2015 and up from as little as 0.19 percentage point in 2014, according to data compiled by Bloomberg.
“The chances of Christie fixing the pension problem before he leaves office -- the probability of that is zero,” said Nick Venditti, a portfolio manager and managing director for fixed income at Santa Fe, New Mexico-based Thornburg Investment Management. He has $11 billion in assets under management, including New Jersey debt. “Probably the next governor can’t do it. It will take several iterations of political leadership before the issue gets under control completely.”
Christie enacted benefits cuts in 2011 that helped shrink the pension liability. The gap then grew as he made partial contributions to deal with a revenue shortfall.
The governor has expressed doubt on whether he’ll be able to enact another round of cuts, and edge closer to fiscal health, by the time his second term ends in January. Would-be partners in the legislature, with all 120 seats open in the November election, are mindful of the governor’s low approval, and are still smarting from his breaking his promise to make full payments.
Christie’s spokesman, Brian Murray, didn’t respond to an e-mailed request for comment on the budget.
During a speech to business leaders, politicians and lobbyists in Washington this month, Christie said they should be wary of candidates for his job who are making promises they can’t keep.
“Any governor who says yes to you more often than he or she says no is only saying yes to you with your money,” he said.
Christie is spending his last year combating New Jersey’s drug-abuse crisis. That’s a focus that comes with undisclosed costs, including a television campaign starring the governor. That’s also a shift from the fiscal-focused Christie of his first term, when the governor criticized predecessors for making short-term fixes to long-term problems, including rising property taxes and pension costs.
For the first seven months of fiscal 2017, which ends June 30, revenue rose 2.3 percent, less than Christie’s target. If it ends the year at that rate, the state will be at least $600 million short, according to Bloomberg calculations based on data from the treasurer and legislative services office.
For 2018, the budget will have about $385 million less because of a bipartisan deal reached in October to pay for transportation projects, according to Fitch Ratings. Christie, who campaigned for president on his opposition to tax increases, agreed to a 23-cent-boost in the gasoline tax in exchange for reductions elsewhere. Over eight years, the budget will lose $8.4 billion from the cuts, Fitch said.
Christie has yet to identify a replacement revenue stream. Another potential budget blow is the loss of $3 billion in annual Medicaid funding if Congress repeals the Affordable Care Act, as promised by President Donald Trump.
Senate President Steve Sweeney, a Democrat from West Deptford who helped Christie win passage of his first-term benefits reductions, only to see him renege, said he and the governor have had no recent talks about a second round.
“There’s no faith and trust,” Sweeney, 57, said in an interview. “It’s going to take a new administration.”