May 21 (Bloomberg) -- New Jersey Governor Chris Christie saidhe’ll reverse course on promised pension contributions this yearand next, cutting back to balance the budget after revenue fellshort of his goals by as much as $875 million.

This year’s payment of $696 million will be less than half theplanned $1.58 billion, Christie told reporters in Trenton. Forfiscal 2015, the payment will be $681 million, less than one-thirdof the record $2.25 billion he had proposed.

New Jersey faces a cash shortage next month, with $2.6 billiondue on tax- and revenue-anticipation notes, or TRANs, and just $2.2billion on hand. The 51-year-old Republican, a potential 2016presidential candidate, has refused to raise taxes to remedy threestraight years of missed revenue.

“This is a political decision -- it’s all about 2016,” PatrickMurray, director of the Monmouth University Polling Institute inWest Long Branch, said by telephone. “Now that he’s not the odds-onfavorite of the moderate wing of the Republican Party, he’s got towin conservative voters. He’s got to do everything in his power notto raise taxes.”

Christie’s prospects have been clouded after prosecutors andlawmakers began investigating the administration’s role indeliberate traffic jams at the George Washington Bridge inSeptember. Christie has denied any hand in closing access lanes inFort Lee, whose mayor didn’t endorse him for re-election.

Fiscal rectitude

Christie, who has made fiscal rectitude a pillar of his message,signed an executive order giving himself permission to alter thisyear’s payment, and will ask lawmakers to approve next year’sreduced contribution. Since his first run for governor in 2009,Christie has cited similar lapsed contributions by predecessors asgimmicks that contributed to the state’s poor fiscal health.

“I’m doing what I need to do to fulfill my constitutionalobligation to balance a budget,” he told reporters yesterday inTrenton. “I’m going to pledge to make the payments that we need tomake to not dig the hole any deeper.”

Christie signed a law that bound him to make extra pensionpayments through 2018 after a decade of expanded benefits andmissed payments left the system underfunded by $52 billion. Withsix weeks left in the fiscal year, he said, he would cover onlypension costs “accrued on our watch by active employees.”

’Really disappointing’

The extra yield that bond buyers demand to purchase New Jerseydebt rather than top-rated munis has decreased this year. Municipalissuance is down 28 percent in 2014 compared with the same periodin 2013, data compiled by Bloomberg show. The yield on New Jerseydebt maturing in 10 years was 0.21 percentage point above benchmarkmunis yesterday, down from 0.44 percentage point in January.

That trend may reverse and the yield gap may widen if Christiecuts the state’s allocations to the pension system, said DanielSolender, who helps manage $15.5 billion of munis at Jersey City,New Jersey-based Lord Abbett & Co.

“For someone who invests in the state, it’s reallydisappointing,” Solender said. “There’s got to be better thingsthan going after the one item that keeps getting the attention ofrating agencies and the investors.”

“This issue is just being pushed further into the future,” hesaid. “It would seem to be something that should lead to widerspreads for the bonds.”

Six downgrades

Moody’s Investors Service cut New Jersey’s credit one step, toA1 or fifth-highest, on May 13. It was the sixth rating cut sinceChristie took office in 2010. The three major rating companies allcited recurring deficits.

Christie said he isn’t concerned that more downgrades arepossible. Moody’s and Fitch Ratings both have negative outlooks onNew Jersey debt, signaling potential for lower ratings.

Christie said he’s reducing his revenue projections for thisyear and next by a total of $2.75 billion.

New Jersey has $2.6 billion of TRANs maturing June 26, with arequired set-aside of 75 percent June 12, according to Moody’s. Asof May 6, the state had $2.2 billion in cash.

“The current revenue shortfall will stress the state’soperational cash flow,” Baye Larsen, a Moody’s senior analyst,wrote yesterday in a report.

The state “will repay its note on schedule,” Joseph Perone, aspokesman for Andrew Sidamon-Eristoff, said yesterday by e-mail. Hedeclined to comment on the possibility of a direct loan or bankcredit line in the event of a cash shortage.

Everyone erred

New Jersey’s $875 million shortfall for the current year wascaused in large part by lower income-tax collections after federalrule changes.

“Everybody got this wrong,” said Christie, referring to otherstates that also had misjudged the changes’ impact on revenue. “Wedid see it coming. We just didn’t see it coming to thisextent.”

The governor said in February that public-employee unions mustagree to changes in retirement and health plans because his 2011overhaul didn’t go far enough to contain costs.

That measure required the state to make one-seventh of itspension contribution in fiscal 2012 and then raise the payment eachyear until reaching the full annual amount in 2018.

“Christie said he fixed the pension system,” said HettyRosenstein, state director of the Communications Workers ofAmerica, the largest state employee union. “Cutting taxes for thesuper-wealthy while stealing money from pensions hasn’t worked yet.And it won’t work this time.”

With assistance from Michelle Kaske in New York.

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