Moody’s: New Jersey COLA Case Could Affect Credit Rating


New Jersey’s Supreme Court will soon decide whether the state acted legally when it froze retiree cost-of-living adjustments in 2011.

If the high court restores COLAs, the state could suffer its tenth credit downgrade in five years, warned Moody’s this week.

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Analysts at Moody’s issued a rare warning on Monday. New Jersey’s A2 credit rating, one of the lowest among the 50 states, could go down again if Christie received “an unfavorable court decision in the pension litigation regarding COLAs,” Moody’s said.


Lawyers involved in the new round of pension litigation say that whatever the Supreme Court rules, it will have a dramatic effect on the state’s finances. When Christie signed the law freezing pension benefits in 2011, the move was expected to save tens of billions of dollars in pension costs over two to three decades.

But Fitch also said this week that a separate Supreme Court ruling – this summer’s decision that Christie wasn’t beholden to a 2011 reform law’s pension contribution timeline – didn’t swing the needle all that much, because it helped the state’s short-term budget but hurts the pension system long-term.

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On Tuesday, another agency, Fitch Ratings, said that court ruling would ease some of the state’s budget woes in the short term even as it left the pension system “more exposed to future under-funding.”

Fitch, in a review of school construction borrowing, did not upgrade New Jersey’s bonds from their “A” rating, but it did revise the state’s financial outlook from negative to stable, noting several improvements.

The three major ratings agencies have collectively downgraded New Jersey nine times since 2011.


Photo By Walter Burns [CC BY 2.0 (], via Wikimedia Commons

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