Moody's warns that if the NJ Supreme Court orders that the state must pay Cost of Living Adjustments (COLAs) New Jersey's credit rating will fall again.
New Jersey’s low-end credit rating could fall again if the state Supreme Court rules that retired public workers are entitled to yearly increases in their pensions, according to Moody’s Investors Service.
A lawsuit challenging one of Governor Christie’s pension-reform laws is pending at the high court, specifically over a section that froze pensioners’ yearly cost-of-living adjustments. The court is expected to hear oral argument at its new term, which begins next month.
Analysts at Moody’s issued a rare warning on Monday. New Jersey’s A2 credit rating, one of the lowest among the 50 states, could go down again if Christie received “an unfavorable court decision in the pension litigation regarding COLAs,” Moody’s said.
One of the plaintiffs of the case projects that if COLAs are reinstated NJ will immediately have to pay $1.1-$1.2 billion in back COLA pay dating back to 2011 and thereafter have to come up with another $30 million a month.
From the actual Moody's Report:
"The negative outlooks reflects our expectation that the state's financial and leverage position will weaken further before structural balance is restored. Without meaningful structural changes that improve the affordability or the state's liabilities, the state's structural imbalance will persist and/or the pension liabilities will grow, and the state's rating will continue to fall."