Moody’s upgrades New Jersey’s credit

Moody’s Investors Service has upgraded New Jersey’s general obligation and Garden State Preservation Trust, NJ bonds to A2 from A3, and the state’s related subject-to-appropriation bond ratings also by one notch, to A3 from Baa1 for bonds financing essential-purpose projects and to Baa1 from Baa2 for bonds financing less-essential projects.

The first significant improvement in New Jersey’s credit rating in 17 years comes after all four rating agencies—Fitch, Kroll Bond Rating Agency (KBRA), Moody’s and Standard & Poor’s—upgraded the state’s credit outlook from “negative” to “positive” in the wake of a massive $46.4 billion state budget signed last June.

New Jersey had a triple-A credit rating in the early 1990s but years of shortchanging pension contributions started during the administration of Republican Governor Christine Todd Whitman set the state on a course for disaster in order to cut income taxes by 30 percent in 1994.

New Jersey’s public worker pension system, which supports the retirement of about 800,000 active and retired state and local government workers, still has close to $75 billion in unfunded liabilities, making it one of the worst-funded systems in the country.

Analysts cited budget gaps, income lost to reckless tax cuts, failures to make adequate pensions contributions, and overly optimistic revenue projections when the state received 11 downgrades from major rating companies– setting an undesirable record for two-term Republican Governor Chris Christie.

An upgrade can lead to reduced borrowing costs for states, as bond investors are willing to accept lower yields from issuers considered less likely to default.

The Kroll Bond Rating Agency upgraded its outlook for New Jersey’s general obligation bonds to positive from stable while retaining an A rating on the bonds in January, joining three other bond-rating agencies in upgrading the state’s general obligation bond outlook: Fitch Ratings, to positive from negative in August 2021; S&P Global Ratings to positive from stable in August 2021; and Moody’s Investors Service to positive from stable in July 2021.

“This is great news for the state and, more importantly, our taxpayers. Our improved credit rating will not only decrease the cost of annual borrowing for the State, saving taxpayers money now and in the future,” said Treasurer Elizabeth Maher Muoio. “But it also provides further evidence that we are taking the right steps on our continuing path toward fiscal security.”

The essential-purpose appropriation financings include bonds issued by the New Jersey Transportation Trust Fund Authority and school construction bonds issued by the state’s Economic Development Authority.

Also upgraded to A3 from Baa1 was the New Jersey County College Enhancement Bond Program Chapter 12. Less-essential project financings include bonds issued by the New Jersey Sports & Exposition Authority. The Liberty State Park Project Bonds issued by the New Jersey Economic Development Authority were affirmed at Baa1.

The program ratings for the state’s aid intercept enhancement programs – the New Jersey Qualified School Bond Program and the New Jersey Municipal Qualified Bond Program -were upgraded to A3 from Baa1. In addition, the rating assigned to Federal Highway Reimbursement Revenue bonds (GARVEEs) of the New Jersey Transportation Trust Fund Authority was upgraded to A3 from Baa1. The ratings on the bonds issued by the South Jersey Port Corporation were affirmed at Baa1.

The outlook on all the bonds has been revised to stable from positive. The outlooks on the enhanced financing-level ratings for schools and local governments that issue under the intercept programs match the outlooks on the programmatic ratings.

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