BUSINESS
07/13/2011 12:19 pm ET Updated Sep 12, 2011

Moody's Threatens Credit Downgrade Of Six New Jersey Cities

NEW YORK (Edith Honan) - Six struggling New Jersey cities were warned on Tuesday their credit ratings might be downgraded by Moody's Investors Service, the rating agency said, citing the loss of state aid.

The cities of Camden, East Orange, Passaic, Paterson, Union City and the state capital of Trenton were all placed under review for possible downgrades of their credit ratings.

Moody's said it would complete a review within 90 days.

The rating agency said the action was prompted by a the state's reduction in transitional aid -- to $10 million from $149 million -- in its fiscal plan for the year that began July 1.

The $139 million cut translates to the six cities seeing a loss in annual revenue, ranging from 2 percent to 38 percent, Moody's said.

"Moody's believes all of the affected cities will have difficulty making up the budget gap created by the cut," Moody's said in a statement.

"Negative rating pressure may result due to each city's current financial position, limited revenue-raising flexibility under the state's 2 percent property-tax cap, weak tax bases, low wealth indicators and the still sluggish New Jersey economy," Moody's said.

New Jersey's cities have been hit hard by the recession. Some of its poorest and most crime-ridden cities -- like Camden -- have been forced to lay off a significant part of their local workforce, including police officers.

On June 30, Republican Governor Chris Christie used a line-item veto to reject $900 million from a spending plan proposed by Democratic lawmakers, saying the plan greatly overstated New Jersey's surplus.

Democrats, who control both houses of the state Legislature, have convened this week to attempt to over-ride some of Christie's vetoes, which they have criticized as targeting the state's most vulnerable people.

"Given the magnitude of the adopted state aid reductions and required process for implementing workforce reductions, we believe that city managers may be challenged to achieve the necessary savings quickly to prevent further financial decline, Moody's said.

(Reporting by Edith Honan; Editing by Jan Paschal)

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