A New Jersey Superior Court judge ruled this week that Chris Christie acted outside the law when he cut the state’s pension contributions $2.4 billion over two years.
That means, pending appeal, the state will be making its full contribution in 2015 – a development that hasn’t yet been budgeted for.
So while the ruling was good news for the state’s underfunded pension system, the decision is a “credit negative” for the state itself, according to Moody’s.
The flexibility of the state’s pension payment has been “a tool essential” to balancing the budget, Moody’s Investors Service said. Putting limitations on that amounts to a “credit negative.”
“Going forward, making the full pension contribution would incrementally improve the pension funding position, but would significantly increase budget pressure by reducing the state’s ability to fund other programs and potentially challenge the state’s liquidity,” Moody’s said.
“While it remains unclear whether the payment will be increased in fiscal 2015, a $1.6 billion obligation would comprise nearly 15 percent of the unspent budget,” Moody’s said.
A credit negative assessment doesn’t suggest a rating or outlook change — which could affect New Jersey’s interest rates — is imminent, but rather assesses the impact of a single event, Moody’s said.
Since the full pension payment isn’t budgeted for, lawmakers are worried that “devastating” cuts will have to be made in the current budget.
The situation might have been avoided had the state taken the same approach as Illinois in 2013.
When Illinois passed it’s pension overhaul it didn’t count the savings in the budget — because it knew a legal challenge was imminent.
Photo By Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons