With New Jersey awash in billions of dollars in extra cash, and defying the expectation of an economic meltdown from the pandemic, Moody’s Investors Services said over the weekend that it was raising the state’s economic outlook.
“Due to better-than-expected revenue performance, the state will end fiscal 2021 with record-high liquidity and fund balance, but also a large structural budget gap and higher debt and fixed costs related to deficit financing,” reads the April 9 analysis from Moody’s, one of the three major Wall Street credit rating agencies.
“However, large fund balances, plans to accelerate pension contributions and fund pay-go capital projects, and the recent demonstration of the governor’s broad powers to reduce expenditures mid-year reflect overall increased budget flexibility compared to the beginning of the coronavirus pandemic,” the analysis adds.
The decision late last week means Moody’s will revise the state’s A3 rating from negative to stable, almost a year after it warned that the state could suffer devastating economic blows because of the pandemic.

Gov. Phil Murphy delivers the Fiscal Year 2022 Budget Address at the Trenton War Memorial on Feb. 20, 2021. – EDWIN J. TORRES/GOVERNOR’S OFFICE
Gov. Phil Murphy cautioned that the state could see upward of tens of billions of dollars in tax revenue evaporate thanks to large-scale business closures that halted the flow of tax revenue to the state.
In order to make up for that potential loss, the state relied on $7.9 billion in direct or indirect federal relief, and roughly $4 billion in debt. Last April, Fitch – another major rating agency – issued the state’s first credit downgrade under Murphy’s term and the first since 2017, arguing that the state could be ill-equipped to handle the economic turmoil. Then in November, S&P Global downgraded the state, citing the potential financial turmoil from the pandemic, and the state’s difficulty with the added debt.
But over the past two months, the exact opposite of a financial squeeze has occurred, and the state is expected to bring $3 billion more by June 30 than what the state’s financial analysts predicted last fall.
And, Murphy added, the state is expected to sock away roughly $6.3 billion into its surplus over the next year.
The non-partisan Office of Legislative Services, in fact, projected that by the end of the next budget year – meaning June 30, 2022 – the state will end up with $550 million more than what Treasury officials are expecting.
While the new debt fueled this mass surge of dollars, budget analysts from both the legislative and executive branches contend the money was not necessary to balance the state’s books.
This has drawn the ire of New Jersey Republicans, who fought in court to have the borrowing plan blocked.
Murphy defended the borrowing last week, saying on April 7 that “we make the decisions at the time we make them based on the best information we have.”
The depletion of federal aid under the Trump-era and Biden-era COVID-19 relief plans in the coming years, as well as the new bonds, means the state could be staring down a “fiscal cliff” where expenses suddenly have no way to be financed.
“It’s incumbent upon us to work with this administration … to pay down debt and … make sure that we make these investments strategically … that we plan for the next two or three fiscal years,” Senate Budget Chair Paul Sarlo, D-36th District, said last week.