At the same time, New Jersey’s newly released annual financial report further underscores some of the progress the administration has made in reducing long-term debt.
Figures included in the state’s latest “Annual Comprehensive Financial Report” track improvement in the category of bonded debt during the 2022 fiscal year, which ended June 30, 2022.
The total amount of money New Jersey owes its bondholders dropped by more than $4 billion year-over-year, according to the report.
The report also included new figures detailing progress made in the category of non-bonded debt, including new assessments of the cost of government-funded pension and health benefits, which are some of the state’s largest financial obligations.
In all, New Jersey was able to shave off roughly 15% of its grand total for long-term obligations, both bonded and non-bonded, during the 2022 fiscal year, according to the report.
Focused on reducing debt
Over the last several years, Gov. Phil Murphy and lawmakers have prioritized retiring bonded debt. That effort was launched after the state issued roughly $4 billion in new debt without voter approval during the first year of the COVID-19 pandemic, helping drive overall bonded debt to a record high during the 2021 fiscal year.
Murphy and lawmakers for the last several years have also budgeted what actuaries would consider to be full employer pension contributions. This comes after many years of governors from both parties failing to do so, leaving the state with one of the nation’s worst-funded public retirement plans as a result.
The ongoing push to whittle down bonded debt and to shore up the public-worker pension fund was highlighted in a round of one-notch credit-rating upgrades that New Jersey received this month from three major Wall Street rating firms.
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 descriptions of progress on the bonded side of the debt ledger, the financial report for the 2022 fiscal year indicates the state made $7 billion in principal and interest payments during that year, paving the way for it to retire far more bonded debt than it issued in the same period.
Part of the funding used to advance the debt-reduction efforts came out of a special account created by Murphy and lawmakers several years ago to reduce state debt or to prevent the issuance of new debt. The Murphy administration also freed up cash during the 2022 fiscal year by refunding previously issued bonds, according to the report.
Meanwhile, on the non-bonded side of the debt ledger, New Jersey’s grand total decreased by nearly $33 billion year-over-year. Most of that reduction is attributable to restatements of New Jersey’s net pension liability and the liability for other post-employment benefits, often referred to as OPEB, according to the report.
But big debt remains
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, which was nearly $40 billion less than was reported this time last year. Still, it was also equal to roughly four times the size of New Jersey’s current annual operating budget.
The credit-rating changes that were announced this month have left New Jersey with a rating of A+ from Fitch Ratings; A1 from Moody’s Investors Service; and A from S&P Global Ratings. All three firms also set New Jersey’s outlook at “stable.”
In addition to boosting New Jersey’s reputation among investors, the rating upgrades have the potential to improve the bottom line by easing borrowing costs that are ultimately covered by taxpayers whenever the state must issue debt to cover long-term investments in things like schools, roads and bridges.
In a news release issued Wednesday, S&P highlighted the state’s “better pension funding levels” and “improved structural balance” as it explained the decision to change New Jersey’s credit rating.
In response, state Treasurer Elizabeth Maher Muoio said the recent upgrades demonstrate the administration’s prioritizing of fiscal responsibility is “not just lip service.”
“We owe it to the taxpayers of New Jersey to be good stewards of their money and with these upgrades it shows we’re doing just that,” Muoio said.
— Graphic by Genesis Obando
