S&P revises New Jersey outlook to "negative"

New Jersey Gov. Chris Christie
Flickr user Bob Jagendorf
New Jersey Gov. Chris Christie
Flickr user Bob Jagendorf

Updated: 3:27 p.m. ET

(CBS News) The New York ratings agency Standard and Poor's on Tuesday revised its outlook for New Jersey's general obligation, appropriation, and moral obligation debt from stable to negative.

"We revised the outlook to reflect our view of the risk of revenue assumptions we view as optimistic, continued reliance on one-time measures to offset revenue shortfalls, and longer-term growing expenditure pressures," Standard & Poor's credit analyst John Sugden said in a statement. According to a release from S&P's, these pressures include pension funding increases, Medicaid funding, and debt service.

Meanwhile, S&P affirmed its "AA-" rating on New Jersey's general obligation debt, its "A-" rating on moral obligation debt, and its "A+" rating on appropriation debt.

"When we change our outlook to negative it just means there's the potential for the rating to be downgraded," Sugden tells CBSNews.com. Sugden says that if New Jersey improves its structural balance or if the projected revenues materialize within the next one to two years, S&P could revise the outlook back to stable.

Among the credit weaknesses S&P cites with reference to the "AA-" rating are "[a] trend of structurally unbalanced budgets that include only partial funding of pension obligations and the reliance on one-time revenues and debt restructurings to offset underfunding of expenditures and revenue shortfalls; a large unfunded pension liability; significant postemployment benefit obligations; and an above-average debt burden."

New Jersey Governor Chris Christie has urged Americans to face the nation's "hard truths" and during his Republican national convention speech called on Americans to embrace a "new era of truth-telling" in American politics.

S&P's revision, however, suggests that Christie is not embracing some of New Jersey's own financial truths: The S&P report shows that "the state revenue estimate reflects 7.9 percent growth in total revenues to $31.7 billion, after accounting for tax relief measures adopted in fiscal 2012." But that may be overly optimistic: The last time that New Jersey experienced a similar level of revenue growth was in 2007, the report states, when growth was partly aided by a 1 percent increase to the state's sales tax rate, and when the general economic outlook was stronger.

"There's the potential that the revenues might not materialize and so we've indicated the potential for the rating to be affected," said Sugden.

New Jersey Treasurer Andrew Pratt pointed out that ratings agencies Fitch and Moody's both affirmed the state's rating within the last week, and suggested that S&P's analysis "out of step" and unconvincing.

"It is gratifying that all three agencies have now affirmed the ratings on New Jersey's debt," Pratt said. "We believe investors will find S&P's arguments to be out of step and its basis for revising New Jersey's outlook unconvincing, particularly in the face of the continued growth in New Jersey's economy and state revenues."

Christie press secretary Michael Drewniak, meanwhile, called the revision "disappointing," particularly in light of the fact that neither of the other two agencies revised the state's status to negative.

"The inconsistency from S&P is disappointing and seems unnecessary," he told CBSNews.com.