Moody's downgrades 24 New Jersey municipalities due to Chris Christie's austerity program

Towns and cities in New Jersey, the second-wealthiest U.S. state, lead the nation in bond-rating downgrades this year.

Moody’s Investors Service cut ratings on $1.7 billion in general-obligation debt issued by at least 24 municipalities in New Jersey this year, almost twice as much as the next-highest state, New York, according to a tally by Bloomberg News.

This is unsurprising for two reasons:
  • He is unlikely to raise property taxes
  • He is unlikely to increase aid, or in the worst case, bailout a municipality.  
On both counts he gets a healthy applause.  Via  Bloomberg:
“It’s a great referendum on my fiscal policies,” Christie, 48, said of the downgrades on Dec. 16. “It says that we’re getting our fiscal house in order. When other states get their houses in order, they will see the downgrades too.”

In New Jersey, Christie has “cut back a lot to balance the budget, and one of the biggest items in those cutbacks is aid to municipalities,” Alan Schankel, director of fixed-income research at Janney Montgomery Scott LLC, a Philadelphia-based broker, said in an interview.

“They’re downstreaming the deficit,” Schankel said. “The state starts out with a deficit; they close it and cut back in a lot of areas, but the biggest impact is on municipalities.”

Christie’s state has 566 towns and cities, 604 school districts and 21 counties, more local governments per square mile than any other, according to the New Jersey League of Municipalities. This abundance of entities with the power to tax and borrow in part contributes to the overall volume of downgrades, said Howard Cure, director of municipal research at Evercore Wealth Management LLC in New York.

The governor reduced state aid to municipalities by $446 million, or 23 percent, in his first budget this year. That followed aid cuts in 2009 by Corzine. Christie also signed a law in July that cuts in half the 4 percent limit on property-tax increases enacted by Corzine. The new cap takes effect in 2011.

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