Credit: (John Mooney/NJ Spotlight News)Another major Wall Street credit-rating agency is listing fiscal policies incorporated into New Jersey’s latest annual budget among the reasons for upgrading the state’s debt grade.
A one-notch rating improvement announced earlier this week by Moody’s Ratings noted that state policymakers maintained a sizable budget surplus, even as they funded other key priorities, such as state aid for public education and employer pension obligations.
The nearly $60 billion annual budget enacted by Gov. Phil Murphy and lawmakers in late June also hiked taxes by more than $600 million, helping reduce a structural budget gap that recently measured more than $2 billion.
“The upgrade was driven by the state’s ability to maintain a comparatively robust budgetary surplus through the current fiscal year even while providing full actuarial pension contributions and meeting education aid and other spending commitments,” Moody’s said in its upgrade announcement.
The rating adjustment from Moody’s comes several weeks after S&P Global Ratings cited similar factors in its own one-notch upgrade of New Jersey’s credit rating.
In all, four different major rating agencies regularly evaluate state creditworthiness and issue debt grades to help guide investors considering the purchase of a municipal bond.
The upgrades from Moody’s and S&P Global come as Murphy, a second-term Democrat, is in his final year in office due to term limits written into the state Constitution. It also comes as majority Democrats in the Legislature are hoping to continue to control the Assembly, with all 80 seats in contention this fall.
In responding to Moody’s rating action, Murphy, a former Wall Street executive, said in a statement the upgrade was the result of “difficult decisions that prioritized a strong, reliable surplus and delivered five consecutive full pension payments.”
“While there is more work to be done in the future, these tough decisions have put us on a long-term path to financial stability,” Murphy said.
In her own statement, state Treasurer Elizabeth Maher Muoio called the recent rating adjustments “independent confirmation that we are leaving the State better positioned to meet its financial obligations and future challenges.”
While technical in nature, a state’s credit rating can be a key factor in determining how easy it is for the government to borrow money to fund long-term investments in things like schools and transportation infrastructure that generally cannot be paid for in a single budget.
A strong bond rating can also lead to lower borrowing costs, costs ultimately funded in the state budget, which can ease pressure on taxpayers or free up funds for other priorities.
“New Jersey’s high wealth and education levels, and its recent trajectory of strong economic performance compared with regional peers, will lend support during a period of disruptive federal policy changes affecting trade and employment” — Moody’s Ratings
New Jersey’s credit rating was lowered by two different Wall Street firms following the outbreak of the COVID-19 pandemic as the state suffered severe job losses and the annual budget was upset by swiftly declining tax revenues.
That left New Jersey with one of the lowest bond ratings of any U.S. state, just as the Murphy administration was preparing to issue roughly $4 billion in new debt to help sustain the state budget during the worst phase of the health crisis.
However, in more recent years, New Jersey has enjoyed a series of bond-rating upgrades as Murphy and lawmakers have worked to reduce bonded debt, while prioritizing things like the budget surplus and annual pension contributions.
Moody’s last adjusted New Jersey’s debt grade in 2023 in another one-notch upgrade. This latest upgrade sets the state’s credit rating at “Aa3” on the Moody’s rating scale, a few notches below its coveted “Aaa” grade.
Looking ahead, Moody’s analysts suggested New Jersey could continue to be limited in its fiscal flexibility due, in part, to remaining retirement benefit funding challenges and disruptive policy changes at the federal level.
“New Jersey’s high wealth and education levels, and its recent trajectory of strong economic performance compared with regional peers, will lend support during a period of disruptive federal policy changes affecting trade and employment,” Moody’s said.
