S&P Global Ratings has upgraded New Jersey’s credit outlook to “stable” and reaffirmed the state’s “A-” rating. Sadly, this rating remains among the lowest in the nation. That said, the rating agency said it has some new-found reasons for optimism as the state tries to increase the funded ratio of its pension system and works to avoid the sort of blown revenue projections that have led to 11 downgrades since Gov. Chris Christie took office.
The new outlook, analysts said, reflects a belief the pension system “will stabilize or improve” over the next year. The agency cited recent decisions to require quarterly payments and to dedicate all state lottery revenue to support the retirement funds.
“These changes substantially reduce the possibility of large holdbacks of pension payments at the end of the fiscal year to meet potential annual budget shortfalls, as occurred in fiscal 2014, when the governor withheld $883 million of budgeted pension contributions,” the analysts wrote.
S&P said it still has many concerns about the state’s financial future. Even the glimmers of hope it noted don’t look that impressive in context: The state is now planning to make just half of the recommended annual contribution to the pensions. The window is closing to get the system back on track before insolvency becomes a real threat, the ratings agency said. S&P said it remains concerned the state won’t be able to reach a full funding level in the next five years, as Christie has proposed.
“In our view, the state’s high unfunded pension liabilities and underfunding of its annual [recommended contribution] remain key credit considerations and a source of future budget pressure,” the analysts wrote. “New Jersey’s pension system remains among the worst funded in the nation and a primary reason why our GO rating on the state is second lowest among all the states.”