Credit: (AP Photo/Mark Lennihan)

 

Editor’s note: This story has been updated to include a third ratings change for New Jersey’s credit rating issued Wednesday.

Major Wall Street rating firms are giving New Jersey a new round of positive reviews, recognizing the state for its flush reserves and ongoing commitment to pay off debt and fund pension obligations. 

In recent days, two different rating firms, Fitch Ratings and Moody’s Investors Service, have each decided to move New Jersey’s credit rating up one notch, citing the state’s improved fiscal practices and diverse economic base among important factors.  

On Wednesday, S&P Global Ratings also raised New Jersey’s credit rating by one notch, citing similar factors.

The rating changes are providing some positive reinforcement for Gov. Phil Murphy and lawmakers as they gear up to enact a new annual budget that must be in place by the time a new fiscal year begins on July 1. 

But in addition to boosting New Jersey’s reputation among investors, the upgrades also have the potential to improve the bottom line for taxpayers by easing borrowing costs at a time when interest rates have been rising under ongoing efforts by the Federal Reserve to control inflation.  

Murphy, a second-term Democrat, has proposed making what actuaries would consider to be a full state pension contribution under the $53.1 billion spending plan he proposed in late February.  

Murphy’s proposed budget also calls for ending the next fiscal year with nearly $10 billion in reserve and predicts overall spending will fall slightly below projected annual tax collections as the state readies for slowed economic growth.  

‘It’s more clear than ever that the moves we’ve made to pay down our debt, increase our surplus, and make our required pension payments are paying off.’ — Treasurer Elizabeth Maher Muoio 

Moreover, before the current fiscal year ends, Murphy is also planning to make a deposit of more than $2 billion into an off-budget account used in recent years to pay down bonded debt and fund large capital projects on a “pay-as-you-go” basis to prevent future borrowing.  

Both Moody’s and Fitch in their respective upgrade announcements pointed to the state’s ongoing efforts to address long-term obligations such as bonded debt and its large unfunded pension liability amassed after more than two decades of shorting prior employer pension contributions. 

Lawmakers on rating changes 

Last week, Moody’s said upgrading New Jersey to A1 on its rating scale is “supported by the state’s commitment to full, actuarial pension contributions …  and its additional allocations of funds to a program to defease debt and cash-fund capital projects.” 

As it moved New Jersey to A+ on its own rating scale earlier this week, Fitch said New Jersey has “effectively used the fiscal momentum of recent years to accelerate progress on its long-term fiscal and liability challenges.”  

Not surprisingly, the rating changes have been widely praised by Murphy and other administration officials in recent days.  

In recent testimony before lawmakers in Trenton, state Treasurer Elizabeth Maher Muoio said rating firms were taking notice as the state has done things like retire debt and fund full actuarial pension contributions over the last two fiscal years. And in a statement issued earlier this week, Muoio said the rating firms are signaling New Jersey is “back on a steady financial course.” 

“It’s more clear than ever that the moves we’ve made to pay down our debt, increase our surplus, and make our required pension payments are paying off,” she said. 

‘…despite recent improvements, high liabilities and elevated carrying costs are likely to remain a longer-term constraint on [New Jersey’s] budget choices.’ — Fitch Ratings

In his statement, Murphy said the “days of ignoring our long-term commitments in favor of short-term benefits are over.”

Fitch had previously raised New Jersey’s bond rating one notch in September and Moody’s took similar action a little over a year ago. Prior to its action Wednesday, the last rating change by S&P Global, a one-notch upgrade, also came in March 2022.   

Still, despite noting New Jersey has a stable outlook, both Moody’s and Fitch highlighted concerns about the state’s remaining sizable liabilities in their more recent announcements.  

Long-term concerns

Last week, NJ Spotlight News reported on preliminary financial statements made public late last month that indicated New Jersey was carrying nearly $44 billion in bonded debt at the end of the 2022 fiscal year.  

Meanwhile, the same financial statements indicated New Jersey’s non-bonded debt, which includes outstanding pension obligations, totaled nearly $170 billion during the 2022 fiscal year.  

New Jersey’s combined total for both bonded and non-bonded debt as of the end of the 2022 fiscal year was just over $212 billion, equaling roughly four times the size of the annual operating budget.  

In its recent rating announcement, Moody’s warned that New Jersey “remains subject to long-term liability and fixed-cost burdens much more substantial than those of most other states.” 

For its part, Fitch said, “despite recent improvements, high liabilities and elevated carrying costs are likely to remain a longer-term constraint on [New Jersey’s] budget choices.” 

And in a list of events that could cause the state’s rating to go down, Fitch cited “significant weakening of the state’s economic trajectory that leads to revenue growth consistently below long-term expectations for national inflation.”