Moody's: N.J. must stop pretending

This file photo shows the signage for credit rating agency Moody's in New York. (Associated Press)

Even though New Jersey employment shrank in March, for the first time since mid-2011, and state tax collections (mostly income taxes) having fallen short of projections by more than $1 billion (3%) for this fiscal year (through June), the state is still budgeting as if its economy will grow more than 5% this year -- and that wishful thinking "has compounded the budget risk of optimistic revenue assumptions," Moody's analyst Baye Larsen warned in a report to investors this morning.

"New Jersey's options for balancing the budget will be limited" this Spring, Larsen wrote. "Options will include structural cuts to operations, one-time cuts to large year-end expenditures," and "other one-time solutions." In fact, New Jersey has been using one-time solutions for "the past several years," which just "underscores its financial weakness," Larsen added.

The rival Standard & Poor's agency cut New Jersey to A+, lower than any state but California and Illinois, earlier this month. Moody's rates NJ one notch higher than S&P does, at Aa3, but Moody's is also considering a downgrade. The lower the debt rating, the more a borrower typically has to pay to attract investors. Moody's is also threatening to downgrade Pennsylvania, in a state election year, for failing to match taxes to spending.