Numerous media outlets this week reported that Moody’s Investor Service is downgrading New Jersey’s $31 billion in tax-supported debt from a “stable” to a “poor” credit rating outlook.
Moody’s cited the state’s widespread use of non-recurring revenue and one-shot budget gimmicks in the rating decision. The move means an increased probability that New Jersey’s long-term credit rating will be lowered, raising interest rates and costs for a cash-starved state that faces a $10 billion budget shortfall.
The City of Trenton should beware.
These moves, so frowned upon by Moody’s, are based on the type of unsound fiscal logic that created the plan to sell suburban Trenton Water Works infrastructure.
The New Jersey state government, under the leadership of both parties, has relied on bond sales, temporary tax hikes, and other moves that have provided the type of fleeting, ephemeral revenue that stands to be generated through the Trenton Water Works sale.
The sale threatens to eliminate the water utility’s annual $4 million to $7 million contribution to the city budget.
In return, we get an $80 million payment that will gone in less than two years.
At that time, we will find ourselves facing the same structural imbalances we see now, without the extra water revenue.
With the sale still hung up in court, Trenton still has time to reconsider its decision to sell this asset.
We don’t have to follow New Jersey’s lead.