(Bloomberg News) New Jersey Governor Chris Christie's comments that rising health-care costs might "bankrupt" the state, made the same day of a planned bond sale, drew criticism for poor timing and may have driven up borrowing costs.
About 20 minutes after Christie, 48, made the bankruptcy reference in a town-hall meeting in Paramus yesterday, the New Jersey Economic Development Authority cut its tax-exempt school bond offering by almost half to $777.5 million and its taxable offering 50 percent to $123.2 million.
"He is scaring some people when he says the state is going bankrupt," said Gary Pollack, head of bond trading at Deutsche Bank Private Wealth Management in New York.
"It wasn't timed well," said Pollack, who oversees $6 billion and said he continues to buy New Jersey bonds.
Linking the governor's remarks with the decision to reduce the debt sale is a "completely bogus interpretation and an irresponsible connecting of unconnected events," Michael Drewniak, a spokesman for Christie, said in an e-mail to Bloomberg News. A spokesman for the Treasury Department also denied any connection, as did the deal's main underwriter.
Bankruptcy Comment
Christie, a first-term Republican, said health-care spending "will bankrupt" the state unless it requires its workers to pay more for medical coverage. New Jersey will spend $4.3 billion on employee and retiree health insurance this year, and that cost will rise 40 percent within four years, he said.
About 30 minutes after Christie's comments, an eight-year authority bond sold in April dropped in price, Municipal Securities Rulemaking Board data show. The yield rose to 4.17 percent in a $400,000 trade at 11:50 a.m. yesterday, about 129 basis points, or 1.29 percentage points, above AAA debt, a BVAL index shows. The security traded on Jan. 10 at a yield of 3.68 percent, or 92 basis points above the benchmark.
A New Jersey general-obligation bond due in August 2015 traded at an average yield of 2.51 percent yesterday afternoon, or 90 basis points over top-rated four-year debt, according to a BVAL index. The same security had traded at 2.1 percent a week ago, 57 basis points above the benchmark.
"Mr. Christie made a rookie mistake," said Mike Pietronico, who oversees $360 million as chief executive officer of Miller Tabak Asset Management in New York. "The market is very sensitive to the word 'bankrupt.'"
Christie's Comments
The Christie administration rejected that interpretation.
"The governor has been making these comments and warnings for months, all while instituting and pursuing reforms to fix the well-documented policy failings of prior administrations -- which, by my recollection, analysts have recognized and applauded," Drewniak said.
Andrew Pratt, a spokesman for Treasurer Andrew Sidamon- Eristoff, said in a telephone interview that "I don't think anybody who is a serious student of the bond market thinks the governor's comments had anything to do with this bond sale."
Political opponents said Christie's comments have consequences.
Assembly Budget Committee Chairman Louis Greenwald, a Democrat from Cherry Hill who has opposed Christie in the past, said the bond-sale reduction was directly linked to the governor's remarks.
"Words matter, and you can't constantly be on stage trying to be bombastic," Greenwald said. "The reality is that people are listening and the public doesn't differentiate when someone is going for style points and when it's reality."
Race to Top
The fiscal impact of having to scale back the bond sale compounds other revenue losses by Christie's administration, including $400 million in federal school aid and $3 billion in U.S. funding for a commuter-rail tunnel to Manhattan that the governor canceled, said Senate Majority Leader Barbara Buono and Budget Committee Chairman Paul Sarlo. Both are Democrats who have criticized many of Christie's decisions.
In August, Christie's administration lost $400 million in federal school aid because of an error on its application for Race to the Top funds. In October, the governor killed a proposed $8.7 billion tunnel under the Hudson River, saying New Jersey couldn't afford it. The federal government had pledged $3 billion toward that project.
"Strong words on a YouTube video may increase the governor's national political capital, but they are having a very chilling impact on the state's finances," Sarlo, of Wood- Ridge, said in a statement with Buono, of Metuchen, that was released in response to the Bloomberg News story.
Market Conditions
John Lawlor, head of municipal markets at Bank of America Merrill Lynch, which led underwriters on the New Jersey bond sale, said the offering was cut because of market conditions.
Municipal bonds suffered their worst quarterly performance in 16 years in the three months ended Dec. 31. Investors pulled a net $22.7 billion from muni mutual funds in the past nine weeks, according to data from the Investment Company Institute in Washington.
"But the fact that New Jersey got $1 billion done is quite a feat, considering $15 billion of assets have come out of muni- bond mutual funds in the last six weeks," Lawlor said. "We saw over $2 billion of bids from institutional clients today, and many other deals of much smaller size were hung up."
The state priced securities maturing in September 2020 to yield 4.64 percent, or 146 basis points above top-rated nine- year debt, a BVAL index shows. When New Jersey priced its last series of school construction bonds, a $716.3 million deal in April, the so-called spread of tax-exempt bonds maturing in nine years was 91 basis points more than the benchmark.
Ben Dworkin, director of the Rebovich Institute for New Jersey Politics at Rider University in Lawrenceville, also said the sale reduction stemmed from economic conditions, not Christie's comments.
"The governor's assessment of New Jersey's fiscal situation might use some hyperbole now and then, but he's for the most part correct," Dworkin said in an interview. "It's not that he's making these situations happen. They are happening."