NJ Gets Record Number of Downgrades Under Christie

New Jersey got slammed with another round of downgrades this week, with Standard & Poor's and Fitch both lowering New Jersey's bond rating for the second time this year. That marks eight downgrades under Chris Christie, a record for a New Jersey governor.

A state's credit rating reflects the likelihood it will be able to repay its lenders. And rating agencies say New Jersey's difficulty balancing its budget, heavy debt burden, and growing pension liability — including the governor's recent decision to cut the state's pension payment to cover a revenue shortfall — are cause for concern.

Matt Fabian, managing director of Municipal Market Advisors, said downgrades can lead to higher interest rates, because lenders want to be compensated for the additional risk they take on. But high demand and a relatively short supply of state bonds means interest rates for New Jersey have gone up less than half a percent since last year. And he says the risk of New Jersey defaulting on its debt is low. States can't go bankrupt, and the last state to default was Arkansas during the Great Depression. 

Chris Santarelli, a spokesperson for the New Jersey Treasury Department, said New Jersey is moving in the right direction after a hard winter and a hit from new federal tax policies. He says the downgrades underscore Christie's message that the state must seek "fiscally sustainable solutions" to address the state's debt and retirement liabilities.