New Jersey is highly likely to reduce or delay its public pension contributions because of the coronavirus, according to a report from S&P Global Ratings that downgraded the state one ratings notch.
Analysts said there is a “significant possibility” there will be a reduction or postponement in contributions, given the extraordinary pressure the nation’s worst funded retirement system is putting on New Jersey’s already constrained budgets, according to a Wednesday report from the credit rating agency.
The report gave the state an “A-,” down from an “A,” with an outlook for future rating actions moving to negative from stable.
For New Jersey, ongoing revenue losses may well result in another credit downgrade. S&P Global Ratings analysts said there is a 33% chance the state will see its score cut once more within the year.
The state, which has a high income per capita, had already been making strides to reduce its structural deficits in health care and other spending.
But the coronavirus has compounded the state’s financial problems, including its large debt and its unfunded pension liabilities. The state pension fund is roughly 40% funded.
Even before the economic fallout, the state had budgeted just 70% of its annual actuarially determined contribution (ADC) for the pension fund, the report said.
The state’s high contributions have constrained New Jersey’s budget, which has lost tax revenues at a time when health care and unemployment costs are spiking to address the public health crisis.
Fearful of budget cuts, lawmakers have been appealing for additional federal aid for state governments in the next fiscal relief package. New Jersey has already suspended nearly $1 billion in state spending.
On Thursday, New Jersey Gov. Phil Murphy met with President Donald Trump in the White House, seeking expanded testing for the coronavirus, as well as financial aid for state governments.
“We don’t see this as a bailout, we see this as a partnership,” the governor said during the meeting. “Doing the right thing in what is the worst health care crisis in the history of our nation.”
Murphy said the state needs $20 billion to $30 billion just to keep police, firefighters, and other public workers on its payroll.
Meanwhile, state lawmakers in Illinois have also recently asked for state bailouts, including $10 billion to fulfill its contribution obligations for its pension funds.
But that has attracted controversy from Republican members of Congress, who have been critical of state bailouts, making it unlikely to pass a GOP-controlled Senate.