Third major Wall Street agency upgrades NJ’s financial outlook

Wall Street credit rating agency Fitch Ratings, which in April warned about the state’s “weaker finances” amid ballooning debt and pension bills, upgraded New Jersey’s financial outlook.

In the Aug. 12 decision, Fitch revised the state’s credit outlook from negative to positive, citing a “rapid turnaround” from the COVID-19 recession, multiple rounds of federal aid, and an added financial cushion clocking in at billions of dollars.

“A solid economic rebound, state balancing actions during the pandemic and multiple rounds of federal assistance are now providing the state with both a solid financial cushion and extra capacity to accelerate progress on its high liabilities,” Fitch continued.

Under the upgrade, the state’s rating with Fitch stands at A-minus, but the move coupled with similar decisions by Moody’s and S&P indicates brighter days ahead for the state, money-wise.

Moody’s, in its July decision, took note of New Jersey’s “improved fiscal governance and management” as the reasoning for upgrading the bond outlook from stable to positive.

“We have not and will not squander this opportunity to tackle the remaining fiscal challenges New Jersey faces, and we will continue to invest in the people of New Jersey,” reads an Aug. 12 statement from Gov. Phil Murphy, who is traveling to his family mansion in Italy.

Fitch in April said it would keep a negative outlook for the state, due to its monumentally larger credit card bill, massive pension liability and unfunded expenses on the horizon.

S&P downgraded New Jersey in November due to uncertainty amid the COVID-19 pandemic’s second wave and concerns about an added $4 billion in debt

Lawmakers and top budget officials conceded that looking back, the state most likely never needed to borrow those funds, but contend that going into the wintery second wave that reality was still uncertain.

On July 1, the Murphy administration formally made New Jersey’s largest pension payment in decades – $6.9 billion – marking the first time in 25 years that the state has come through on its full pension bill.

“By making the first full pension contribution in 25 years, and by making strides in tackling health care costs, bolstering our surplus, and avoiding future debt issuance, we have momentum working in our favor,” Murphy added.

The lack of full pension funding had been the basis for a combined 11 credit downgrades across Moody’s, S&P and Fitch, mostly during the era of Murphy’s predecessor, Republican Gov. Chris Christie.

But Wall Street has been widely anxious about the health of New Jersey’s finances, citing the still massive pension bill, enormous debt and increased spending.

S&P held off on upgrading the state’s bond rating, saying there are still substantial concerns about record-high spending, the unfunded pension debt, and other high bills. Fitch analysts agreed.

The record-high $46.4 billion spending plan Murphy signed in late June includes hundreds of millions of dollars in so-called “pork spending” or “Christmas tree items;” that is, spending that goes to benefit projects in a lawmaker’s specific legislative district.

Upward of 10% of the state’s budget is deficit spending, according to S&P. And Fitch questioned whether the state would be able to pay for its added expenses, including the full yearly pension payments, once the federal aid dries up, or in the event  of a “significant weakening or delay in the economic recovery from the pandemic.”