Cuomo Turning Table on Christie as N.Y. Beats N.J.: Muni Credit

September 13, 2012

By Michelle Kaske and Terrence Dopp -Bloomberg

New York and its municipalities have achieved lower 10-year borrowing costs than their New Jersey counterparts since Governor Andrew Cuomo took office, reversing a trend that stretched back to 1994.

Since Cuomo, a 54-year-old Democrat, took his post at the start of 2011, 10-year debt sold by New York and its localities has yielded less on average than bonds issued in Republican Governor Chris Christie’s New Jersey, data compiled by Bloomberg show. From 1994 through 2010, New York had the higher interest- rate penalty.

While the three major credit-rating companies last year downgraded New Jersey one level, citing reasons including its unfunded pension liability, New York is poised for its highest credit grade in four decades. Standard & Poor’s last month revised its outlook on the Empire State to positive from stable after two consecutive on-time budgets.

“I have a bit more concern about New Jersey only because of their pension funding,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s private-wealth unit in New York. “New York pension funds are very highly funded.”

Pension Gap

Both governors have made changes to retirement benefits, capped property taxes and cut spending. Yet New Jersey had about 68 percent of assets to pay future retirement costs as of June 30, 2011, according to state data. New York’s system was 90 percent funded at the end of fiscal 2011, according to the office of state Comptroller Thomas DiNapoli.

Localities in both states are borrowing at levels close to record lows. Still, since Jan. 1, 2011, yields on 10-year debt sold in New York are 0.014 percentage point below New Jersey bonds of similar maturity on average, Bloomberg data show.

That’s a reversal from the 16 years through 2010, when 10- year New York securities yielded 0.13 percentage point more on average than New Jersey’s, according to Bloomberg index data starting in 1994. In five-year debt, New Jersey issuers have paid more extra yield than New York borrowers on average since the start of 2010.

Longer-term bonds tell a different story in recent months. Interest rates on 30-year debt sold in the Garden State have been below New York bonds with a similar maturity since May 1, Bloomberg data show. It’s the first time that’s happened since August 2009. For 20-year maturities, New Jersey’s costs have been below New York’s for most of the past year.

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