Monday, November 2, 2015

New Jersey Out-Dysfunctions Illinois, Has Country's Worst Credit

From Bury Pensions:

Credit risk this time and according to The Bond Buyer teaser:

Despite last week’s downgrades, Illinois’ general obligation paper fares better than New Jersey for relative credit risk, Municipal Market Analytics (MMA) said in a commentary comparing the two lowest-rated states.

Crain’s Chicago Business (CCB) also got a copy of the MMA report and, though the headline implied a toss-up, the excerpts included in their story clearly show why New Jersey deserves its rank:

For Illinois vs. New Jersey, Municipal Market Analytics asks: Is it better to own the general obligation bonds of a state in the middle of a budget impasse (Illinois) or the bonds of a state with a budget that only contributes to the “continued deterioration of its finances”? 
The answer is Illinois, especially because payments on New Jersey bonds require continuing appropriations by the Legislature, while Illinois law makes bond payments automatic.

That may be the answer CCB wants but how could any investor feel secure knowing the New Jersey Legislature has a say in whether they get paid?

“In the near to medium term, we are bearish on the finances of both states as they are facing significant challenges and doing an admirable job making them worse,” the report says.
Illinois has fewer legal options to cut pensions and retiree health care benefits, but it does have the capacity to raise revenues, the report says. New Jersey has more “theoretical ability” to reduce those costs, but the “state’s high tax burden diminishes its flexibility,” according to the report.
I can't keep saying this again, NJ is f****d.  We can never fully fund SFRA.

The gist of the comparison between Illinois and NJ is that Illinois has fewer legal options to shed pension debt, but since Illinois' taxes are not yet as high as New Jersey's, Illinois has a greater ability to raise taxes.

New Jersey cannot raise taxes as much as Illinois could, but its pension reform hasn't been gutted yet, so it might be able to reduce some of its pension obligations.

If the NJ Supreme Court guts pension reform like Illinois' Supreme Court did then New Jersey will be in a different league than Illinois in the tightness of its fiscal vise.

Unfortunately the Education Law Center has NO CLUE how bad New Jersey's fiscal position is.  Last week they sent a letter to the Attorney General demanding that New Jersey borrow billions more to pay for more construction in the Abbott districts.

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