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Despite Gov. Chris Christie's efforts, New Jersey is still crunched by a "sluggish economic recovery," Wall Street analysts at Moody's said today.

(Saed Hindash/The Star-Ledger)

TRENTON — Wall Street analysts at Moody's Investors Service today lowered their outlook on New Jersey's debt from stable to negative, saying the state remains hamstrung by rising costs and "a sluggish economic recovery" despite Gov. Chris Christie's efforts.

The analysis by Moody’s warns that public workers’ retirement benefits and other costs are climbing rapidly, and that revenue is not growing fast enough to bridge the gap.

Although Moody’s gives Christie credit for taking a “proactive approach” to control pension and health benefit liabilities, the overall assessment was dire for the Republican governor at a time when his advisers are pushing for a 10 percent tax cut.

“The state will face challenges in improving its very weak liquidity position, due to the state's sluggish economic recovery, which has hindered revenue performance,” Moody’s analysts wrote in a note to investors today.

The state will have little flexibility in coming budgets because Christie and state lawmakers agreed to increase the state’s contribution to the insolvent pension and health benefits funds for public workers, the report notes. This year’s budget included a $1.7 billion payment; next year it is set to rise to $2.4 billion.

On the bright side, “job growth has approximated (the) U.S. rate for 11 months, suggesting improved economic stability,” Moody’s said. But on the other hand, this year’s “revenue collections remain below projections, despite stronger than expected year-over-year growth to date.”

The state Treasury Department reported today that November tax collections exceeded Christie's forecast by $17 million, or 1 percent. For the first five months of the budget year that began in July, revenue is running $98 million, or 1.2 percent, behind Christie's estimates for his $33 billion budget, however.

A spokesman for the state Treasury Department said that Moody's review was "flawed" and that recent developments "have laid the foundation for even greater gains in the state’s economy."

"The uptick in the state’s tax revenues that we saw in November is just one of a growing number of positive signs for New Jersey’s economy," said Bill Quinn, the spokesman. "Moody’s also noted that over the last year, the state has posted a record of eleven consecutive months of job gains in line with the national average and has reduced its overall unemployment rate by 1.2 percent. With the last three years of increases in annual pension funding, the state is also acting responsibly in dealing with its long-term liability issues."

The credit-rating agency did not downgrade New Jersey’s debt, but warned that it could do so if there is “slower-than-projected revenue growth” or “a significant increase in the state's debt position.”

Moody's downgraded New Jersey's bond rating to Aa3 in 2011. A further downgrade likely would raise the state's borrowing costs.

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