State's 'borrow today, pay tomorrow' ways put us in a jam

FROM THE ASBURY PARK PRESS

Reason for debt reduction

But Joseph M. Giglio, an executive professor of general management in Northeastern University's School of Business Administration, said it's prudent for states to reduce debt because eventually high amounts of outstanding debt will make it more expensive to borrow money.

Most of New Jersey's previous bond issues have been given an AA- rating by Standard & Poor's and an A1 rating by Moody's Investors Service. Those ratings characterize the bonds as favorable investment opportunities that may have greater risk than the highest-rated securities. It's the equivalent of a homeowner having to pay more a month for a mortgage loan because of poor credit.

"Seventy percent of states have a double A-minus (rating)," Assemblyman Wisniewski said, "and so does Goldman Sachs, by the way." He was referring to the investment banking firm Corzine used to head. Some larger states, such as Texas, Michigan and Ohio, have higher bond ratings.

Corzine points out that the state's credit rating has been downgraded by Moody's three times since 1992, meaning the state will pay more debt-related interest on any future bond issues.
Giglio also noted that increased debt payments make it difficult for the state to finance other projects.

"To the extent that your annual debt service increases, it crowds out your ability to spend on operating and maintenance," he said.

Treasury spokesman Vincz said the annual cost of state payments for health benefits, pensions and debt service has risen from about $2 billion in fiscal year 2002 to nearly $5 billion in fiscal year 2008. That's an increase of 145 percent.

To read this entire story, please visit: http://www.paradigmshiftpr.com/statesborrow.htm