Downgrading New Jersey's Towns

Last week, North Haledon up in Passaic County became the 18th municipality in New Jersey to have its creditworthiness downgraded by Moody's Investors Service. This is a result of Governor Christie's 2 percent cap on increases in property values. But what exactly does it mean? How will towns having their credit rating lowered affect you?

Cities and other local governments finance things like schools and wastewater treatment plants by floating bonds, then paying off those bonds with tax revenues. The lower their credit rating is, the higher the interest a city has to offer to investors who are interested in buying the bonds. Christie's property-tax plan will increase (ever so slightly) the risk of default, and limit cities' ability to raise money for such public-works projects.

The Moody's downgrade doesn't affect any bonds that have already been issued, but it raises the cost of borrowing going forward. The end result will likely be that communities that have been downgraded will scale back some of their public works projects - which is a likely effect of the tax restraints anyway. Will the increased bond payments offset the savings in property taxes? That's hard to say, but it will have the effect of kicking the increase down the road a few years. Bonds are paid off over a period of years, but you owe your property taxes every year.