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By Hilary Russ
May 15 (Reuters) - Moody’s Investors Service downgraded Newark, New Jersey, on Friday two notches to Baa3, one level above junk, bringing to a close the rating agency’s review of seven of New Jersey’s most financially stressed cities.
Altogether, Moody’s downgraded $935.7 million of local government debt in New Jersey, including Newark, Trenton and Paterson, that it had put under review in March. Only Weehawken escaped with its debt rating unscathed.
Paterson lost its investment-grade rating on May 4. Newark also saw $39 million of its general obligation limited tax bonds cut to junk on Friday.
The downgraded cities, which depend heavily on state financial aid, now will likely pay the price in the marketplace for New Jersey’s own weak financial condition.
None of those cities have come to market since they were put on review. But Trenton canceled a planned bond sale days after its downgrade.
The weaker ratings have trickled down from the state’s own financial problems. New Jersey has been downgraded nine times since Governor Chris Christie took office in January 2010.
Credit rating agencies have criticized the state’s use of one-time budget measures and its severely underfunded pension system.
Moody’s review was prompted in part by the strain on the state budget caused by pension contributions. While the state passed bi-partisan pension reform in 2011 that mandated stepped-up contributions, Christie slashed funding into the system by $1.6 billion for this fiscal year.
The New Jersey Supreme Court is now reviewing those cuts, and it could force the state to make that full payment with just weeks left before the end of the fiscal year on June 30. That puts pressure on other expenditure, like aid to local governments.
Moody’s also said in its initial review that Christie’s decision to appoint an emergency manager for Atlantic City signaled an erosion of the state’s historically strong support for its distressed local governments. (Reporting by Hilary Russ in New York, additional reporting by Kanika Sikka in Bengaluru; Editing by Diane Craft)