Changes to N.J. pension system improve state's credit rating, report says

Trenton -- Bipartisan changes to New Jersey’s public pensions have gotten a thumbs-up from a major credit ratings agency, even as the state continues to shirk its obligation to contribute to pension funds.

Still, included in ratings released yesterday by Moody’s Investors Service was a warning to Trenton’s feuding politicians: pass a budget relatively on time, or risk a lower credit rating.

The report praised the "major pension reform" signed in March — which reduces benefits for future hires and requires current employees to contribute to health care costs — as a step toward repairing the imbalance in the state’s pension system, underfunded by $46 billion as of last June.

The pension laws take effect May 21, though public employee unions have filed court challenges.

"If they, in fact, follow through with the reforms that are now in place, that will have long-term benefits," said Edith Behr, senior credit officer in Moody’s public finance group. She said the reforms "balanced" the fact that the budget once again would not allocate any money for is now a $3 billion pension bill.

The report said the state risks a downgrade if debate on the $29.3 billion budget lasts "much beyond a week" after the June 30 due date. The state shut down for eight days in 2006 when then-Gov. Jon Corzine and Democratic lawmakers could not agree on a budget. Lower bond ratings means the state has to pay more to borrow money.

This year, the state’s top Democrats have said they will not pass a budget without a tax increase on income over $400,000, extending a one-year tax that expired in December. Republican Gov. Chris Christie insists he will not sign any tax increases.

Democrats yesterday staked out another position, saying they would not pass a budget that did not increase prescription drug funding for seniors. Christie’s proposed budget includes a $350 annual Medicaid deductible, and tries to encourage seniors to use generic drugs by decreasing co-pays for generics from $6 to $5 while increases co-pays for brand-name drugs from $7 to $15.

In the report issued yesterday, which rated $750 million in notes for school construction, Moody’s said the state’s credit rating depends on the resilience of the state’s economy, whether it addresses long-term concerns such as debt, pension and health care obligations, and keeps enough cash on hand.