Finance fails: Why N.J. pays Wall St. extra

(Update, adds Christie administration comment at bottom) New Jersey's $142 million general-obligation bond sale, due to price today, is expected to cost Garden State taxpayers a 1%-a-year surcharge above what more solvent states pay when they borrow money -- an extra $1.4 million a year, one price voters pay for their politicians' inability to either pay or reduce unfunded pension liabilities for police, teachers and other public workers.

"New Jersey's 10-year bonds yield 2.82 percent, the highest after Illinois among the 20 states tracked by Bloomberg," Bloomberg LP's Romy Varghese reports here. That's one full percentage point above what top-rated states like Maryland and Delaware pay to sell their bonds, and more than triple the surcharges tacked onto bonds from other famously high-spending states like California and Massachusetts.

Why? "New Jersey's mounting tab from its employee retirement plans are squeezing its finances because years of failing to set aside enough to cover promised benefits have caused the annually required contributions to soar," writes Varghese. Plus, "Republican Governor Chris Christie and the Democratic-controlled legislature have yet to replenish a fund that finances transportation projects and is set to run out of money in July." Job growth is also weak, holding down state revenues.

"Senate President Steve Sweeney, a Democrat, is pushing legislation that would ask voters to mandate that the state pay what it owes every year, a move Christie opposes because he says it would require a massive tax increase.

"The three major credit-ratings firms have downgraded New Jersey a total of nine times since Christie took office in 2010, when the impact of the recession was roiling its finances. It has a lower rating from Moody's Investors Service and Standard & Poor's than any state but Illinois. (New Jersey debt ratings) "will continue to fall" absent any significant change, Moody's said in a report last week. Tuesday, "S&P lowered the outlook on New Jersey to negative from stable."

UPDATE: NJ Dept of Treasury spokesman Joseph R. Perone says S&P only "stated the obvious" in pointing out that unfunded pensions "continue to be our Achilles heel. That is why the Governor has recommended a substantial increase in pension funding in conjunction with common sense reforms to lower costs." Christie sees opponents who seek to fund the pensions at today's levels as "special interests" who " prioritize public sector employees over all other New Jerseyans," and blamed them for the "risk" of any future rate cut.