New Jersey received some good fiscal news recently as Moody’s Investor Service upgraded the outlook for the state’s general obligation bonds to positive from stable.
“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. These actions include debt reduction and avoidance and acceleration of pension contributions,” Moody’s said in a press statement July 13.
The upgraded outlook from Moody’s affects approximately $40 billion of outstanding rated debt and is good news for Gov. Phil Murphy (D) who is up for reelection in November, facing a Republican challenge from former State Assemblyman Jack Ciattarelli.
Challenges From Recurring Spending
Moody’s qualified the good news with a cautionary note, raising concern that the Garden State may face ongoing fiscal challenges.
“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 said in its statement.
Additionally, Moody’s upgraded to stable from developing the outlook for the state’s $779 million of outstanding Motor Vehicle Surcharge bonds issued by the New Jersey Economic Development Authority.
Gov. Murphy Praises News
Gov. Phil Murphy and State Treasurer Elizabeth Maher Muoio praised Moody’s move to upgrade New Jersey’s credit outlook to positive. Murphy did not mention his predecessor, former Gov. Chris Christie, but said his administration inherited fiscal challenges.
“On the heels of a record 11 credit downgrades under the prior administration and in the midst of an unprecedented global pandemic, we’ve delivered historic levels of pension funding—including the first full contribution in a quarter of a century—set aside money to pay off a sizable portion of state debt and avoid future issuances, secured long-term savings for the State and its taxpayers, bolstered our surplus, and positioned ourselves well to tackle the remaining challenges that lie ahead,” Murphy said in a July 13 statement.
The governor credited Muoio for “steady leadership, particularly during the economic upheaval we faced over the last two years.”
Treasurer Points to Pension Payments, Other Factors
Muoio pointed to making “record pension payments, reining in soaring health care costs, controlling debt, pursuing reliable and recurring revenue sources, and addressing the structural imbalance we inherited” as factors that contributed to the upgrade in New Jersey’s credit outlook.
The $46 billion budget that Murphy signed into law in June included a record total payment of $6.9 billion to the State Pension Fund. Moreover, Murphy’s budget set aside $3.7 billion for a Debt Defeasance and Prevention Fund. Established through companion legislation, $2.5 billion of the funds are slated to go toward retiring State debt and the remaining $1.2 billion will support capital construction that replaces current or future debt issuances.
“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. Today’s action by Moody’s acknowledges that these decisions, cumulatively speaking, were both prudent and purposeful,” Muoio said.
Murphy and Muoio noted additionally that Moody’s upgraded the outlook to positive for other debt issued by New Jersey, including: appropriation backed debt; bonds issued by the Garden State Preservation Trust, NJ; moral obligation debt issued by the South Jersey Port Corporation; the New Jersey County College Enhancement Bond Program Chapter 12; New Jersey Municipal Qualified Bond Program and New Jersey Qualified School Bond program intercept programs; and the New Jersey Transportation Trust Fund Authority’s Federal Highway Reimbursement Revenue Notes.