O’Scanlon Blasts Democratic Colleagues, Statehouse Press Corp Over S &P Outlook Spin

The three major credit rating agencies affirmed the credit ratings of New Jersey’s bonds within the last week.   Two of the three, Moody’s and Fitch affirmed the outlook for the State’s credit as stable.  However, while affirming their AA- rating today, Standard and Poor’s lowered their outlook for New Jersey from stable to negative.  S&P’s rationale for lowering their outlook is that they consider Governor Chris Christie’s revenue projections optimistic.

Democratic legislators, Assembly Budget Committee Chairman Vincent Prieto, Senate Budget Committee Chairman Paul Sarlo and Assembly Majority Leader Lou Greenwald, a potential gubernatorial candidate next year, all jumped on the S&P outlook downgrade to score political points against Christie.  The Statehouse Press Corp was happy to advance the negative spin.

Monmouth County’s Declan O’Scanlon, the Assembly Republican Budget Officer, fired back against the Democrats and the media for “crowing” about the S&P report while falling mute over the Fitch and Moody’s reports is a scathing statement:

“My Democrat colleagues are like vultures seeking to pounce on potential prey despite the fact that their appetite will not be satisfied by one agency’s outlook,” said O’Scanlon, R-Monmouth. “They are always ready to jump on what they perceive to be negative news and many in the media buy into their political theatrics. Instead of working with the governor and Republicans in the Legislature, they continue to wait for gloom and doom predictions.

“The conduct and glee from our leading legislative Democrats is remarkable and disturbing. For days, they sat silent when two ratings agencies affirmed New Jersey’s credit rating in response to the Schools Development Corporation bond offering and today are dancing in the streets when a third rating agency – after also maintaining the state’s credit rating – gave an outlier’s opinion and lowered its outlook,” explained O’Scanlon. “To see this kind of political opportunism and rooting for failure from individuals entrusted with some of the highest leadership positions our government offers is disgraceful. Their Swiss cheese, fragmented perception of reality – with the holes miraculously lining up with anything positive about our state’s fiscal condition – is disturbing, but not surprising.”

“That our Statehouse press corps simply gobbles the partisan nonsense up so willingly is also a real disappointment, stated O’Scanlon. “That is especially so when you see them blindly quoting even those lawmakers who so vigorously fought bipartisan pension and benefits reforms in an effort that would have crippled New Jersey’s long-term efforts to fix our long-term economic health.

“Had we followed the path of the very people now attacking the Governor the outlook for the state’s future would be dramatically worse. They cannot, with a straight face, criticize this Governor with any credibility,” said O’Scanlon. “It was this governor that has started to turn our state around – and he had to fight the very people now attacking him in order to do that. The governor and Republicans know we are in a difficult economy and these are risky times. But we are also not afraid to make tough decisions. Previous Democrat administrations talked about tough times, but never took action. Without taking decisive action to fix many of our state’s problems,New Jerseywould be in a financial abyss.

“The Democrats’ are selling a bill of goods to the public and the media which conveniently ignores their eight-year record of expanding government spending and want us to believe their distorted view of reality,” commented O’Scanlon. “We have more work to do in turning our state around, but I am much more confident entrusting our state’s future with the Christie administration than its Democratic predecessors.”

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Standard and Poor’s: Christie’s Budget Structually Unbalanced, Based On Optimistic Revenue Projections

Wall Street rating agency, Standard and Poor’s, released an analysis of Governor Christie’s Fiscal Year 2013 budget yesterday that concurred with the reaction that many on both sides of the aisle have had since Christie addressed the legislature on Monday;  Where are these revenue numbers coming from? 

NEW YORK (Standard & Poor’s) Feb. 24, 2012–New Jersey Gov. Chris Christie
released his proposed $32.15 billion budget for fiscal 2013 on Feb. 21. The
budget remains structurally unbalanced, is built on what Standard & Poor’s
Ratings Services regards as optimistic economic projections to close the
budget gap, and increases New Jersey’s (AA-/Stable) reliance on nonrecurring
revenues.

Christie’s budget projects revenue growth of 7.3% to $31.86 billion.  Based upon the state’s projections, revenue would have increased 9%, if not for Christie’s proposed income tax reduction.  While S&P concurs that revenue could increase significantly in a strong economy given New Jersey’s high income and progressive income tax structure, the agency doesn’t see a strong economy on the horizon in New Jersey until 2015.

“Due to New Jersey’s high incomes and the state’s progressive income tax
structure, we believe revenues could rebound significantly in a strong
economy,” said Mr. Sugden-Castillo. “However, in our view, the economic
assumptions that underpin the state’s revenue forecast appear to be optimistic based on current and projected economic conditions at the state and national levels,” he added. Through the first half of fiscal 2012, New Jersey revenues grew 3.2% from fiscal 2011, but are still falling 3.2% below budgeted amounts. According to IHS Global Insight Inc., the state will register 1.3% growth in 2012- 16th among all states. Unemployment in the state was 9% as of December 2011. IHS Global Insight projects employment will not return to pre-recession levels until 2015 and projects unemployment to remain above 8% through 2014.

Assemblyman Declan O’Scalon, the Republican Budget Officer in the lower house, said that S&P’s report is so flawed that it resembles a political hit piece more than an objective credit analysis.

“S&P, and other critics, are relying on the year to date short fall in our current revenues compared to budget in order to give their criticism of our new budget credibility,” said O’Scanlon,  “They are all ignoring the well known fact that the lion’s share of state revenue comes in during the first quarter of the calendar year.”

O’Scanlon said that New Jersey’s revenue receipts will be right on budget at the end of February and that S&P should have known that.

“I’m holding my breath waiting for S&P to revise their report,” said O’Scanlon, “For two years, the Christie administration’s revenue projections have been spot on. I’m confident they will be this year too.”

Regarding the reliance of non-recurring revenues O’Scanlon said, “13% of Jon Corzine’s last budget relied on so-called one shot gimmicks. The Christie administration reduced that to 4% in the current budget and it’s only 5% in the proposed budget.  There are always going to be non-recurring items.  We (the Republicans) have brought them down to prudent levels.  S&P should be praising that part of our budget, not criticising it.”

S&P also criticized the Christie administration for underfunding the state pension system:

Slightly more than half of the increase ($587 million) in
total spending is tied to pension funding cost increases. Total funding for
defined benefit pensions grows to $1.1 billion in fiscal 2013 from $484
million in fiscal 2012. Defined Benefit Pension funding accounts for 3.33%of
spending in the proposed budget. Despite this significant increase, New Jersey
is only funding 28.6%, or 2/7ths, of its statutorily determined actuarial
recommended contribution, which is different from ARC as defined by GASB.
According to the state, the ARC as calculated by GASB is normally higher than
the statutorily determined actuarial recommended contribution. The
underfunding of the ARC results in continued pressure on its pension system.

“To treat what the Christie administration has done with the pension system as news and a negative ignores recent history and raises suspicions of political motivation on the part of S&P,” O’Scanlon charged, “The Governor’s proposed budget makes the largest pension contribution in New Jersey history and is right on track with the pension reforms and benefit reforms passed last year.”

O’Scanlon defended the 3.7% increase in spending under the proposed budget. “What should be cut?  The increased spending on education and municipal aid holds down property taxes.  The other increases are for pensions and higher education, which has been neglected for decades.  Our educated and sophisticated workforce is our most important asset.”

John Sugden-Castillo, S&P’s primary credit analyst for the report, has not responded to an email asking for comment.

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S & P Downgrades Unitied States Credit Rating From AAA to AA+

From StandardandPoors.com:

Overview

· We have lowered our long-term sovereign credit rating on the United
States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term
rating.
· We have also removed both the short- and long-term ratings from
CreditWatch negative.
· The downgrade reflects our opinion that the fiscal consolidation plan
that Congress and the Administration recently agreed to falls short of
what, in our view, would be necessary to stabilize the government’s
medium-term debt dynamics.
· More broadly, the downgrade reflects our view that the effectiveness,
stability, and predictability of American policymaking and political
institutions have weakened at a time of ongoing fiscal and economic
challenges to a degree more than we envisioned when we assigned a
negative outlook to the rating on April 18, 2011.
· Since then, we have changed our view of the difficulties in bridging the
gulf between the political parties over fiscal policy, which makes us
pessimistic about the capacity of Congress and the Administration to be
able to leverage their agreement this week into a broader fiscal
consolidation plan that stabilizes the government’s debt dynamics any
time soon.
· The outlook on the long-term rating is negative. We could lower the
long-term rating to ‘AA’ within the next two years if we see that less
reduction in spending than agreed to, higher interest rates, or new
fiscal pressures during the period result in a higher general government
debt trajectory than we currently assume in our base case.

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