Moody’s revises New Jersey’s outlook from stable to positive, but warns of ‘structural budget gaps’
July 29, 2021Moody’s Investors Service has affirmed its A3 rating on New Jersey’s outstanding general obligation debt, and the agency also revised its outlook for the state from stable to positive.
“The state has responded to a brightening revenue and liquidity picture with several actions reflecting a recent commitment to addressing more aggressively its liability burdens, demonstrating improved fiscal governance and management,” Moody’s wrote in an announcement. “These actions include debt reduction and avoidance and acceleration of pension contributions.
“However, increased spending on recurring programs in fiscal 2022, including education, creates structural budget gaps that make the state vulnerable to budget risks in a period of continued uncertainty and may challenge the state’s ability to sustain its improving trajectory,” Moody’s added.
Last month, Gov. Phil Murphy signed New Jersey’s $46.4 billion fiscal 2022 budget, which sets aside $3.7 billion for a debt defeasance fund, and it allocates $6.9 billion to the state pension plan.
“This year’s $6.9 billion pension contribution and the over $4 billion we are putting towards repaying old debt and avoiding new, will improve the overall solvency of our pension fund and produce several billion dollars in long-term savings – moves that will pay dividends for years to come,” State Treasurer Elizabeth Maher Muoio said in a news release. This “action by Moody’s acknowledges that these decisions, cumulatively speaking, were both prudent and purposeful.”
Additionally, Moody’s affirmed several other ratings, including Baa2 (Sr lien) and Baa3 (Sub lien) ratings for the Garden State’s $779 million of outstanding Motor Vehicle Surcharge bonds issued by the New Jersey Economic Development Authority (NJ EDA). The agency also revised the outlook on the bonds from developing to stable.
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