Has Chris Christie “fixed” the problem?

June 28, 2011

Has Chris Christie “fixed” the problem?

Joan Gralla of Reuters reports that Governor Chris Christie will be signing the pension and health-benefit reform law today. This is an important step for the health of New Jersey’s pension plans, and Governor Christie should be lauded for his accomplishment.

The state’s 2010 Debt Report (page 15) said that they have $87.5 billion in unfunded liabilities as of June 30, 2009 and that the rate of increase has gone up substantially in recent years:

  • $30.7 billion for the seven major state pension funds
  • $56.7 billion in unfunded post retirement health benefits

Unfortunately Governor Christie has skipped payments of $5.5 billion over the last two years and compounded these unfunded liabilities. One of these skipped payments was used to claim a “balanced budget.” Your household budget is not really “balanced” if you skip your car loan payment for a year.

Now the Wall Street Journal is reporting that New Jersey must take an emergency $2 billion loan from JP Morgan because they haven’t properly projected their future revenues. The terms of borrowing will surely be higher than if they borrowed through the municipal bond market. It’s really like going to a payday lender.

Skipping payments and using payday lenders are not good signs of fiscal prudence. Maybe New Jersey is not making such big strides after all.

How raters impose fiscal discipline

For those not familiar with the powerful influence that credit rating agencies have on issuers, read this op-ed in the Detroit Free Press by Gary Brown, councilmember and president pro tem of Detroit City Council. He is using the actions of Fitch to try and move the Council to more fiscal discipline.

Last week, Fitch Ratings downgraded the City of Detroit’s municipal bond rating further into junk status. Its reasoning was that the city has “optimistic revenue projections.” This is troubling as it offers more evidence of the city’s dire financial straits. The financial community is not seeing the progress it expects in a turnaround effort.

The drop in the bond rating is the final nail that drives home the point that City Council must maintain its stance on the budget cuts.

Muniland action update

From Chip Barnett of Reuters:

Municipal debt [issuance] will total about $7.7 billion this week, the highest level so far this year, according to estimates by Thomson Reuters on Friday.

“The primary calendar is finally beginning to show signs of picking up as average weekly volume has increased,” according to a report released on Monday by Bank of America Merrill Lynch. “As the primary market is beginning to pick up pace, secondary trade volume is declining.”

Meanwhile, the latest fund flow data shows investors want higher-yielding securities for the short-term, according to a report issued on Monday by Citigroup Global Markets.

“Patterns in bond fund flows as shown in the Lipper Data statistics show little sign of a return to significant continuing positive flows,” Citigroup said.

End game in Alabama

Barnett Wright of the Birmingham News continues his excellent reporting on the disastrous Jefferson County sewer bond issue. The debt burden is so disproportionate to what residents can pay that the only choices left to resolve this long-running issue are bankruptcy or negotiated settlement. Last week the governor of Alabama signaled his willingness to advance towards a bankruptcy filing, and this has brought the banks, primarily JP Morgan, to the table.

Jefferson County officials, who were on the brink of filing the largest government bankruptcy in U.S. history, announced Monday that they will enter intense negotiations with creditors over the next 30 days to try to resolve the $3.2 billion sewer debt crisis.

Commission President David Carrington said the county would begin a “standstill period” during discussions with sewer bondholders.

His announcement came shortly after John S. Young, the court-appointed receiver for the Jefferson County sewer system, said he would postpone a public hearing scheduled for Wednesday on his proposed 25 percent rate increase.

Carrington and Young said in separate statements that participation by Gov. Robert Bentley and Attorney General Luther Strange has nudged the sides toward the possibility of a negotiated deal.

Mini sweeps

Thomson Reuters News and Insight: Dispute over U.S. municipal advisers rages on

Kiplinger: 10 Tax-Unfriendly States for Retirees 2011

Bond Buyer: No Better Time to Go Long-Term?

Digital Communities: What Makes a Community Intelligent?

Wall Street Journal: SEC Broadens Probe Into Stifel Financial

Investment News: BondWorks rolled out to advisers

Toll Road News: A tale of two states, two tollroads – MD vs TX, ICC vs 121

Muni Net Guide: Charter Schools Earn High Marks for Loan Performance

Oregon Live: Portland doctor makes house calls by bicycle: practical, green, healthy


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Sixty percent of the savings in Christie’s pension bill comes from a breach of contract (COLAs) with retirees. This will not stand up in court. He is intentionally trying to delay true pension reform in the state by enacting illegal pension reforms. This will take several years to work through the courts. Attorneys for both the Legislature and the AG’s office have issued opinions that the proposed COLA taking is illegal. The COLA and the base benefit are debts of the state. How can the ratings agencies not see this? It reminds me of their blind spot in rating junk mortgage CDOs AAA. To read about Colorado’s attempted theft of the retiree COLA visit saveperacola.com.

Posted by Algernon | Report as abusive

I am not big on my Governor’s lack of diplomacy, and agree with this analysis, but He was chipping away at the same monumental sized problem that many states (and the Federal government) are being forced to acknowledge. I ball-parked about eight million adult age residents here. Covering the above listed debt would take about 11,000/resident. Unlikely. You might find more trouble at the county and municipal level also. I think Christie worked (bullied?) in an area where he could make progress, before the public lost patience with his methods. Where do you begin?

Posted by auger | Report as abusive