Rating Agencies Renew NJ ‘A’ Bond Rating But Warn Of Fiscal Stress

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Two Wall Street ratings agencies August 15 reaffirmed New Jersey’s ‘A’ bond rating, but warned the State is still dealing with major financial issues that could cause problems in the future.

S&P Global Ratings said New Jersey ‘continues to face significant ongoing financial pressures’ and that recent positive developments are far eclipsed by deeper issues that may require legislative action.’

“Given that more than seven years have passed since the official start of the economic recovery, New Jersey’s struggles with a structural imbalance remain out of step with more highly rated credits, and the state’s economic growth continues to lag the nation, contributing to growth in revenues that has not kept pace with expenditure growth,” S&P Global Ratings credit analyst Carol Spain said in a statement.

“The negative outlook reflects our view that New Jersey’s pension liabilities will remain a source of downward pressure on the rating,” she said. “While the state currently plans to increase pension contributions incrementally through fiscal 2023, there is uncertainty as to whether or not it will continue to fund its pensions based on its current funding goals. At projected funding levels, pension funding is already a source of pressure on the state’s budget, which could rise above projections, whether due to weak investment returns or revised actuarial assumptions. In our view, a continuation of the current trend of declining pension funded levels could lead to diminished credit quality over the outlook horizon and bring the rating in line with its indicative rating.”

Fitch Ratings said its decision was based on New Jersey’s ‘history of structurally-imbalanced financial operations, persistent under-funding of its liabilities, an elevated debt burden, and economic performance that has only recently begun to show positive momentum following the national recession that ended in 2009.’

Beyond the uncertainty surrounding the state’s troubled public pension system, both agencies said New Jersey’s year-to-year budgeting is subject to increasing strain and its structural imbalance has worsened.”