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Fast Money & Foreign Objects
Christie Cuts N.J. Pension Payments to Close Budget Gaps
By Elise Young and Terrence Dopp May 20, 2014 8:57 PM ET
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New Jersey Governor Chris Christie said he’ll reverse course on promised pension contributions this year and next, cutting back to balance the budget after revenue fell short of his goals by as much as $875 million.
This year’s payment of $696 million will be less than half the $1.58 billion he announced, Christie told reporters in Trenton. For fiscal 2015, the 51-year-old Republican said he anticipates a $681 million payment, less than one-third of the record $2.25 billion he had proposed.
“Everybody got this wrong,” Christie said yesterday, referring to a drop in U.S. state income-tax collections after federal tax changes. “We did see it coming. We just didn’t see it coming to this extent.”
New Jersey has $2.6 billion of tax and revenue anticipation notes, known as TRAN, maturing on June 26, with a required set-aside of 75 percent on June 12, according to Moody’s Investors Service. As of May 6, the state had $2.2 billion in cash.
“We expect the current revenue shortfall will stress the state’s operational cash flow,” Baye Larsen, a Moody’s senior analyst, wrote yesterday in a report. “However, TRAN payment is supported by the executive authority to cut appropriations.”
Christie signed a law that bound him to make extra pension payments through 2018 after a decade of expanded benefits and missed payments left the system underfunded by $52 billion. With just six weeks left in the fiscal year, he said, he would cover only pension costs “accrued on our watch by active employees.”
Fiscal Rectitude
Christie, who has made fiscal rectitude a pillar of his political message, said he would sign an executive order giving himself permission to alter this year’s payment, and will ask lawmakers to approve next year’s reduced contribution. Since his first run for governor in 2009, Christie has cited similar lapsed contributions by predecessors as gimmicks he said contributed to the state’s poor fiscal health.
The extra yield that bond buyers demand to purchase New Jersey debt rather than top-rated munis has decreased this year. Municipal issuance is down 28 percent in 2014 compared with the same period in 2013, data compiled by Bloomberg show. The yield on New Jersey debt maturing in 10 years was 0.21 percentage point above benchmark munis yesterday, down from 0.44 percentage point in January.
That trend may reverse and the yield gap may widen if Christie cuts the state’s allocations to the pension system, said Daniel Solender, who helps manage $15.5 billion of munis at Jersey City, New Jersey-based Lord Abbett & Co.
‘Really Disappointing’
“For someone who invests in the state, it’s really disappointing,” Solender said. “There’s got to be better things than going after the one item that keeps getting the attention of rating agencies and the investors.”
“It should lead to buyers expecting more since this issue is just being pushed further into the future,” he said. “It would seem to be something that should lead to wider spreads for the bonds.”
The state has managed year-end cash successfully to meet TRAN payments for 20 years, according to the Moody’s report.
Governor Jon Corzine, the Democrat who preceded Christie, obtained a $2 billion line of credit from JPMorgan Chase & Co. (JPM) in June 2009, with four weeks left in the fiscal year.
On that occasion, the Corzine administration said it couldn’t update disclosure information in time to sell short-term notes.
Repayment Schedule
The state “will repay its note on schedule,” Joseph Perone, a spokesman for Andrew Sidamon-Eristoff, said yesterday by e-mail. He declined to comment on the possibility of a direct loan or bank credit line in the event of a cash shortage.
Christie said he isn’t concerned that more rating downgrades are possible. Moody’s and Fitch Ratings both have negative outlooks on New Jersey debt, signaling potential for lower ratings.
Moody’s cut New Jersey’s credit one step, to A1 or fifth-highest, on May 13. It was the sixth rating cut since Christie took office in 2010, leaving him tied with Democrat James McGreevey for the most reductions for a New Jersey governor. The three major rating companies have all cited recurring deficits as revenue fails to meet Christie’s projections.
Sidamon-Eristoff is to appear today before the Assembly budget committee with a budget update. Christie said he’s reducing his revenue projections for this year and next by a total of $2.75 billion.
Public Employees
The governor, a potential 2016 candidate for president, said in February that public-employee unions must agree to changes in retirement and health plans because his 2011 overhaul didn’t go far enough to contain costs.
That measure required the state to make one-seventh of its pension contribution in fiscal 2012 and then raise the payment each year until reaching the full annual amount in 2018.
Hetty Rosenstein, state director of the Communications Workers of America, the largest state employee union, said the move is a “one-shot gimmick” that belies Christie’s talk of an economic turnaround.
“Christie said he fixed the pension system,” she said. “It’s time Christie realizes what everyone else knows: cutting taxes for the super-wealthy, while stealing money from pensions, hasn’t worked yet. And it wont work this time.”
Assembly Speaker Vincent Prieto, a Democrat from Secaucus, said Christie’s policies endanger New Jersey’s finances. Democrats control both houses of the legislature.
“The governor’s plan is the result of five years of budgeting decisions that left New Jersey no room to handle any revenue shortfall, let alone a crisis,” Prieto said by e-mail. “Those decisions were unfortunate and irresponsible, and if wasn’t for the fiscal responsibility of Democrats, things would be even worse.”
Christie Cuts N.J. Pension Payments to Close Budget Gaps - Bloomberg
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scumbag
By Elise Young and Terrence Dopp May 20, 2014 8:57 PM ET
17 Comments Email Print
Save
New Jersey Governor Chris Christie said he’ll reverse course on promised pension contributions this year and next, cutting back to balance the budget after revenue fell short of his goals by as much as $875 million.
This year’s payment of $696 million will be less than half the $1.58 billion he announced, Christie told reporters in Trenton. For fiscal 2015, the 51-year-old Republican said he anticipates a $681 million payment, less than one-third of the record $2.25 billion he had proposed.
“Everybody got this wrong,” Christie said yesterday, referring to a drop in U.S. state income-tax collections after federal tax changes. “We did see it coming. We just didn’t see it coming to this extent.”
New Jersey has $2.6 billion of tax and revenue anticipation notes, known as TRAN, maturing on June 26, with a required set-aside of 75 percent on June 12, according to Moody’s Investors Service. As of May 6, the state had $2.2 billion in cash.
“We expect the current revenue shortfall will stress the state’s operational cash flow,” Baye Larsen, a Moody’s senior analyst, wrote yesterday in a report. “However, TRAN payment is supported by the executive authority to cut appropriations.”
Christie signed a law that bound him to make extra pension payments through 2018 after a decade of expanded benefits and missed payments left the system underfunded by $52 billion. With just six weeks left in the fiscal year, he said, he would cover only pension costs “accrued on our watch by active employees.”
Fiscal Rectitude
Christie, who has made fiscal rectitude a pillar of his political message, said he would sign an executive order giving himself permission to alter this year’s payment, and will ask lawmakers to approve next year’s reduced contribution. Since his first run for governor in 2009, Christie has cited similar lapsed contributions by predecessors as gimmicks he said contributed to the state’s poor fiscal health.
The extra yield that bond buyers demand to purchase New Jersey debt rather than top-rated munis has decreased this year. Municipal issuance is down 28 percent in 2014 compared with the same period in 2013, data compiled by Bloomberg show. The yield on New Jersey debt maturing in 10 years was 0.21 percentage point above benchmark munis yesterday, down from 0.44 percentage point in January.
That trend may reverse and the yield gap may widen if Christie cuts the state’s allocations to the pension system, said Daniel Solender, who helps manage $15.5 billion of munis at Jersey City, New Jersey-based Lord Abbett & Co.
‘Really Disappointing’
“For someone who invests in the state, it’s really disappointing,” Solender said. “There’s got to be better things than going after the one item that keeps getting the attention of rating agencies and the investors.”
“It should lead to buyers expecting more since this issue is just being pushed further into the future,” he said. “It would seem to be something that should lead to wider spreads for the bonds.”
The state has managed year-end cash successfully to meet TRAN payments for 20 years, according to the Moody’s report.
Governor Jon Corzine, the Democrat who preceded Christie, obtained a $2 billion line of credit from JPMorgan Chase & Co. (JPM) in June 2009, with four weeks left in the fiscal year.
On that occasion, the Corzine administration said it couldn’t update disclosure information in time to sell short-term notes.
Repayment Schedule
The state “will repay its note on schedule,” Joseph Perone, a spokesman for Andrew Sidamon-Eristoff, said yesterday by e-mail. He declined to comment on the possibility of a direct loan or bank credit line in the event of a cash shortage.
Christie said he isn’t concerned that more rating downgrades are possible. Moody’s and Fitch Ratings both have negative outlooks on New Jersey debt, signaling potential for lower ratings.
Moody’s cut New Jersey’s credit one step, to A1 or fifth-highest, on May 13. It was the sixth rating cut since Christie took office in 2010, leaving him tied with Democrat James McGreevey for the most reductions for a New Jersey governor. The three major rating companies have all cited recurring deficits as revenue fails to meet Christie’s projections.
Sidamon-Eristoff is to appear today before the Assembly budget committee with a budget update. Christie said he’s reducing his revenue projections for this year and next by a total of $2.75 billion.
Public Employees
The governor, a potential 2016 candidate for president, said in February that public-employee unions must agree to changes in retirement and health plans because his 2011 overhaul didn’t go far enough to contain costs.
That measure required the state to make one-seventh of its pension contribution in fiscal 2012 and then raise the payment each year until reaching the full annual amount in 2018.
Hetty Rosenstein, state director of the Communications Workers of America, the largest state employee union, said the move is a “one-shot gimmick” that belies Christie’s talk of an economic turnaround.
“Christie said he fixed the pension system,” she said. “It’s time Christie realizes what everyone else knows: cutting taxes for the super-wealthy, while stealing money from pensions, hasn’t worked yet. And it wont work this time.”
Assembly Speaker Vincent Prieto, a Democrat from Secaucus, said Christie’s policies endanger New Jersey’s finances. Democrats control both houses of the legislature.
“The governor’s plan is the result of five years of budgeting decisions that left New Jersey no room to handle any revenue shortfall, let alone a crisis,” Prieto said by e-mail. “Those decisions were unfortunate and irresponsible, and if wasn’t for the fiscal responsibility of Democrats, things would be even worse.”
Christie Cuts N.J. Pension Payments to Close Budget Gaps - Bloomberg
:chrismad::chrismad::chrismad:
scumbag
