(Adds details, background, response from state)
March 21 Fitch Ratings on Friday revised its outlook on New Jersey's general obligation debt to negative from stable, citing budget strain and saying economic performance was insufficient to support the growing demands of the state's high long-term liabilities.
The credit rating agency affirmed its 'AA-' rating on the state's GOs, reflecting New Jersey's high wealth levels and broad economy despite a high debt burden.
The action affects about $2.4 billion of GO debt and another nearly $3.9 billion of certificates of participation and appropriated debt issued by multiple state authorities.
New Jersey's higher-than-average debt burden is compounded by large and growing unfunded pension liabilities. The funding level of the state's retirement system is projected to continue declining through the medium term, Fitch said.
The state's plan for public employees was funded at 49.1 percent as of fiscal year end 2012, while its plan for teachers was 59.3 percent funded. About 80 percent or above is considered healthy.
The state is on track to make its largest ever pension contribution in fiscal 2015 of $2.25 billion, under reforms passed in 2011 when Christie worked with the Democrat-led legislature.
But the huge contributions still aren't as big as actuarials say they should be. The 2011 reforms call for the state to increase payments by a set amount each year, to culminate at $4.8 billion in fiscal 2018 in an effort to make up for years of underfunding.
Christie, who has been considered a likely Republican presidential candidate in 2016, called for additional reforms during his February budget address, though he provided no details. Democratic leaders said they would not consider additional changes.
The contributions under Christie are "cumulatively more than any other governor in history," said spokesman Kevin Roberts.
"The agency's change in outlook puts an even greater emphasis on the need to bring further reform to New Jersey's long-term liabilities, specifically the unsustainable costs of public employee pension and health benefits systems," said a spokesman for New Jersey Treasurer Andrew Sidamon-Eristoff.
Fitch also said "the state's ongoing reliance on one-time budget solutions to achieve and maintain balance and its insufficient annual pension contributions are evidence of a significant structural imbalance."
But Roberts said that Christie has reduced such one-time items to 2 percent in his current budget proposal, down from 13 percent in former Governor Jon Corzine's last budget.
Fitch said New Jersey's revenue performance in fiscal 2013 was challenged by an "overly optimistic" adopted budget revenue forecast and the impact of Superstorm Sandy. (Reporting by Devika Krishna Kumar; Editing by Kirti Pandey and James Dalgleish)