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Gov. Chris Christie, shown here at a news conference earlier this year, has defended his administration's budget planning despite criticism from all three Wall Street credit-rating agencies in recent months.

(Andrew Mills/The Star Ledger)

TRENTON — A major Wall Street credit-rating agency downgraded New Jersey's debt again Thursday, unnerved by "both the scale and belatedness" of an $807 million budget gap disclosed this week by Gov. Chris Christie's administration.

The action by Fitch Ratings followed a similar ratings cut last month by Standard & Poor’s. Earlier this week, Moody’s Investors Service called the shortfall a "credit negative development," forewarning that yet another downgrade may be coming.

The Fitch analysts wrote that the downgrade "incorporates the state’s ongoing budget strain created by overly optimistic revenue forecasts, a multitude of long-term spending pressures, and the state’s repeated reliance on one-time solutions to achieve budgetary balance."

The warnings from Wall Street are likely to give pause to investors and raise New Jersey’s borrowing costs when it issues bonds for major projects such as building schools or repairing roads and bridges.

Fitch and Standard & Poor’s have both downgraded New Jersey from AA- to A+, or from high grade to upper medium, this year alone. Since Christie took office in January 2010, the state has received two downgrades from each of those agencies and one from Moody’s for a total of five. Only California and Illinois are rated lower.

The consensus is that New Jersey is mired in a sluggish economic recovery, made worse by escalating costs and years of Christie overshooting by hundreds of millions of dollars his estimates for growth in state tax revenue.

Democratic lawmakers laid the blame at Christie’s feet Thursday, and said major changes would have to be made to the current budget and the $34.4 billion spending plan the Republican governor has proposed for the new fiscal year, which begins July 1.

"Credit-rating agencies have no faith in the fiscal health of the state of New Jersey because year in and year out we miss our revenue targets," state Sen. Paul Sarlo (D-Bergen), the budget committee chairman, said. "If we continue at this pace, we’re going to end up in junk-bond status. This is crazy."

BELOW ESTIMATES

Revenue came in at least $600 million below Christie’s estimates last month, widening the total budget shortfall to $807 million with only 60 days remaining in the fiscal year.

The governor defended his administration’s budget planning at a news conference on Tuesday, blaming a series of unfortunate events caused by the "fiscal cliff" agreement struck in Washington last year.

Because Congress let some of President George W. Bush’s tax cuts for wealthy earners expire, Christie said, many of New Jersey’s top earners moved their income so it would be taxed in 2012 to avoid the higher rates that kicked in at the start of 2013.

STATE'S SHORTFALLS

This phenomenon blew large holes in the budgets of several states, he said, since it was hard to predict how the wealthy earners would respond.

"If we continue at this pace, we're going to end up in junk-bond status," state Sen. Paul Sarlo (D-Bergen) said Thursday, criticizing Gov. Chris Christie's administration for overestimating April tax collections by more than $600 million.

"Many other states that are heavily dependent on income taxes, including Connecticut, Pennsylvania, Kansas and Michigan, face shortfalls of similar or even greater magnitude that defied predictive analysis," Joseph Perone, a state Treasury Department spokesman, said in response to the downgrade.

But Sarlo said Christie easily could have predicted that revenue would be off since, in April 2013, the governor’s budget received a one-time, $525 million windfall because of the same changes in federal law, he said.

According to the nonpartisan Office of Legislative Services, state revenue "jumped $525 million, up 39 percent, spurred by taxpayers who shifted income to avoid federal tax rate increases in January 2013."

Finding new revenue streams has to be on the table now, Sarlo said, although Christie has repeatedly pledged not to raise taxes and has vetoed several Democratic efforts to increase taxes in recent years.

Assemblyman Gary Schaer (D-Passaic), chairman of the budget committee in the lower house, called the Fitch downgrade "devastating news that reflects poorly on the governor’s fiscal management of this state and his reliance on short-term solutions."

PENSION PAYMENTS

Aside from the $807 million budget gap, Fitch also highlighted the state’s pledge to make rising payments for retirement benefits for public workers and a laggard jobs recovery over the last year.

New Jersey is scheduled to pay $1.6 billion toward the state pension fund this year, and $2.24 billion in the next budget, but Christie said Tuesday those payments might be delayed or cut to plug the budget shortfall.

Christie and state lawmakers have only two months to find the $807 million needed to end the year in balance, as required by the New Jersey constitution.

"As Governor Christie said this week, all options are on the table," Perone said. "We are currently working to identify potential options, and the governor will work with the Legislature to achieve a balanced budget."

RELATED COVERAGE

• Moody's: No good options for Christie to close $800M budget gap

• S&P downgrades New Jersey's debt rating, criticizing Christie's budgets

• More Politics

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