TRENTON -- New Jersey's economy isn't growing fast enough to pay for the state's commitment to kick in more for public worker benefits, putting it at risk of deep deficits in coming years, a Wall Street rating agency warned this week.
In the report, Moody's Investor's Service says New Jersey has wound itself into a fiscal knot that can likely only be undone by a combination of tax increases, spending cuts and improved economic growth.
In recent years, Gov. Chris Christie has increased contributions to the grossly underfunded government worker pension fund each year by a tenth of what's recommended by actuaries. From this year to next, that's an additional $650 million.
Christie has stated often that the growing cost of benefits is crowding out funding for other expenses.
The state's ability to make afford those payments relies on overly optimistic revenue assumptions, analysis said.
New Jersey's average revenue growth, 2.8 percent, has lagged both the Northeast and the national average, according to Moody's.
Basing their own estimates on less ambitious returns on pension investments and slower growth in line with the past five years, Moody's said the state could be careening toward a $3.6 billion operating deficit by 2023.
That's equal to 9 percent of the state budget.
But neither economic expansion nor tax increases alone can restore the balance, Moody's said on Thursday.
"Tax rate increases, such as the 'millionaires' tax' implemented in prior administrations, could bridge some of the gap, but may be politically challenging in this already high-tax state. Closing the entire $3.6 billion gap with revenue-side solutions alone appears unlikely," analysts said.
Gubernatorial candidates seeking to replace Gov. Chris Christie have proposed bringing back variations of the millionaire's tax. But the size of the future deficit is so large, Moody's said, "it unlikely that a sufficient tax increase would be politically feasible."
Finding enough cuts, too, would be "highly challenging," the agency said, adding even slashing employee health benefits would fall short in the long term.
Moody's said the state's best hope is some combination of spending cuts, improved economic growth and tax increases.
"A mixture of stronger economic growth, tax increases and structural spending cuts would close the deficit and make the fixed costs affordable, although spreading the fiscal pain among a broad set of stakeholders in this manner also introduces political challenges," the report said.
Willem Rijksen, a Treasury Department spokesman, said Moody's is discounting the potential for tax cuts enacted last year as part of a transportation funding deal to stir economic activity.
Those cuts, he said, "are a necessary investment to keep people, businesses and capital in this State. Conversely, if you raise taxes too high, economic activity declines."
They also represent more than $1 billion in lost revenue to the state annually, once fully implemented.