The state government of New Jersey was under serious financial stress before they shutdown their economy. Now, with no tax revenue coming in, the state budget will probably crash without pension gutting. Investor reports are sending out the warnings on them as well.
A Wall Street rating agency is warily eyeing how New Jersey might fare during the COVID-19 economic recession and be able to keep up with its massive pension costs, if at all.
That, in turn, caused S&P Global to drop the state’s credit outlook from A stable to A negative. “There is a significant possibility New Jersey will reduce annual pension contributions or delay the scheduled contribution increases because of the current recession,” reads the S&P report.
Pension contributions in the fourth quarter of the current state budget, which runs through June 30, may be a “tempting target” for payment delays, S&P said.
That comes after the state saw its first credit downgrade since 2017, a drop by Fitch from A to A minus on April 21, over concerns about the state’s ability to ride out an economic slowdown and loss of its tax revenue. Moody’s meanwhile dropped the state’s credit outlook of A3 from stable to negative.
The COVID-19 response triggered a domino effect in New Jersey and across the country. Governors put their states in virtual lockdown to prevent the spread of the virus—a tactic that is working, but could stay in place for many more weeks.
The mass business closures and bans on non-essential travel have ground commerce to a halt, destroying the types of revenue that states rely on – for New Jersey the sales, gas, income, corporate business, casino and lottery sales taxes.
S&P indicated it was worried about whether New Jersey could make its full pension and retirement health care benefits payments, because of sluggish tax revenues and how the state budget might fare come an Aug. 25 reintroduction and extended Sept. 30 deadline.
Source: NJ Biz