Newark, the biggest city in New Jersey, had its credit rating cut to A3, the fourth-lowest investment grade, by Moody’s Investors Service for its inability to balance the annual budget. The one-step downgrade came with a negative outlook.
Newark may face a deficit of $30.5 million for 2011, Moody’s said today in a report. Mayor Cory Booker raised property taxes 16 percent, fired police and plans to sell some city facilities to balance its $605 million budget this year.
About a quarter of the city’s residents live below the poverty level, while unemployment reached 14.9 percent in August, when it was 9.4 in the state and 9.5 percent nationwide, according to the report. Moody’s placed Newark’s rating on review for a possible reduction on Aug. 13. The downgrade affects $500 million in general-obligation debt outstanding.
“Revenues remain uncertain and additional expenditure cuts of a significant nature may be difficult to achieve,” analysts including Josellyn Yousef said in the report. “The city may be challenged to further reduce headcount through means other than attrition in order to generate what may be very large needed savings.”
Residents of Newark, a city of about 280,000 that is home to Prudential Financial Inc., had a median family income that was 66 percent of the U.S. median in the three years through 2008, according to Census Bureau figures.
‘Wouldn’t Be Crazy’
“Moody’s wouldn’t be crazy” to cut the city’s bond rating, even after steps that have been taken to balance budgets in the current year and next year, Business Administrator Julien Neals said prior to the decision. He said the city’s 2011 deficit may reach as high as $42 million.
Neals said Newark’s moves to eliminate about 700 workers over the past year and boost property taxes couldn’t be expected to automatically bring higher ratings.
“What we don’t have any control over are how the steps we take will translate into confidence on the part of Moody’s and the market,” Neals said in an interview yesterday. “When we go to market, there’s a completely different weighting scale.”
Booker, who took office in 2006 seeking to end chronic deficits by this year, didn’t immediately respond to a message seeking comment.
To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
