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Why NJ’s bad credit rating matters

Thursday, June 30, 2016   (0 Comments)
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NJ1015.com 06/30/16

 

Q. What does New Jersey’s bad credit rating mean to me? I’m not planning to leave the state any time soon.

— Jersey lover

 

A. It matters.

 

You can look at the state’s current situation as similar to an individual who has problems with credit and debt.


Credit ratings are used as a way to predict a borrower’s ability to meet their obligation. All other things being equal, borrowers with high credit ratings can borrow money at lower rates than borrowers with poorer credit ratings, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

 

“The state of New Jersey has had its credit rating lowered numerous times over the past six years primarily due to concerns about New Jersey’s ability to balance its budget,” Hook said. “Thus the state has had to borrow money at higher interest rates.”

 

Hook said the effect of this lower credit rating is likely to have a greater effect on the state as rates begin to rise. He said no one knows for sure what will happen in the future, but it seems that getting the budget issue under control would help the state’s credit rating.

 

There are only two ways to balance a budget, Hook said: cut expenses or raise revenue.

Both of these are difficult to do and could directly affect you.

 

“Raising taxes in order to raise revenue can affect you depending upon how the tax increase is applied,” Hook said. “For example, raising the gas tax affects everyone who drives. Raising income taxes on New Jersey residents who make over $500,000 will only affect a small segment of New Jersey residents.”

 

Cutting expenses can affect you as well, he said.

 

For example, if bus or train service is cut and you use the train or bus, that can affect you if you use those services. Cutting state Motor Vehicle services may not affect you if you take the bus or train, but will affect you if you drive a car.

 

So, Hook said, it is likely that one way or another you will feel the effects of a lower credit rating in your state which is why it is important that states remain fiscally responsible.

 

Now, the state’s bad credit situation isn’t only bad for today. It’s bad for the future.

 

“Our bad credit rating means that our kids are going to get stuck with the tab,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “New Jersey is spending money that it simply does not have and we have debt in excess of $170 billion dollars.”

 

Lynch said given the current economic climate, if you’re not planning to leave the state, you should consider a move.


“You can only cut spending so much especially when you have huge pension obligations,” he said. “That just leaves an increase in taxes.”

 

Lynch said right now, our income and property taxes are some of the highest in the nation.

 

“Higher taxes mean that there is downward pressure on home prices,” Lynch said. “For many people it makes much more sense to simply move to a less taxing state.”


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