Aug. 16 (Bloomberg) — New Jersey Cigarette Tax Revenue Bonds issued in 2004 were cut to Baa3 by Moody’s Investors Service, its lowest investment-grade level, with a negative outlook because declining consumption may threaten repayment.

As state and federal taxes have risen, consumption of cigarettes has dropped an average of 6 percent a year since 1997, Moody’s said today in a report. That’s almost twice the 3.2 percent rate projected in the bond prospectus, and may mean tax revenue won’t cover debt payments by 2018, Moody’s said.

“It just was a stupid idea and one of many stupid ideas that happened in this building over the last eight years,” Governor Chris Christie told reporters today in Trenton, the state capital. “Because we’re actually being successful at getting fewer people to smoke, our bonds are less solid than they were before, according to the ratings agencies.”

Moody’s action affects $1.1 billion in bonds outstanding from the 2004 sale, through which the state raised $1.4 billion to help balance the fiscal 2005 budget. The 30-year securities, lowered from Baa2, are set to be repaid with 65 cents of New Jersey’s $2.70 per-pack tax, the sixth-highest level among U.S. states. Revenue from the levy fell 4.8 percent last year and 9.2 percent in 2007, after rate increases, Moody’s said.

“Consumption has declined at a faster rate than originally projected and is expected to continue to decline over the life of the bonds,” Moody’s analysts Lisa Cole and Edith Behr said in the report. Both are based in New York.

‘Rank Irresponsibility’

“It shines a bright light on the folly of having done that in the first place,” said Christie, the first Republican to be elected governor in the state since 1997. “It shows really just the rank irresponsibility and stupidity of some of the previous administrations.”

New Jersey is dedicating 28 percent more than needed to cover the bond payments, said Andrew Pratt, a spokesman in Trenton for state Treasurer Andrew Sidamon-Eristoff.

“That cigarette consumption would decline was of course expected, and it is considered a beneficial outcome from a health perspective,” Pratt said by telephone.

Moody’s said the drop in cigarette sales tax revenue may have been exacerbated by last year’s increase in the federal levy, to $1.01 per pack from 39 cents. New Jersey retailers also may be losing sales to neighboring Pennsylvania, where the tax rate is more than $1 lower at $1.60 per pack, the analysts said.

New Jersey, the 11th most-populous U.S. state, has a general-obligation bond rating of Aa2 from Moody’s, according to data compiled by Bloomberg.