The Wall Street credit rating agency S&P Global, which downgraded New Jersey last year amid worse conditions of the pandemic and uncertain economic prospects, has upgraded the state’s financial outlook.
S&P, in its Aug. 3 decision, cited added surplus revenues for the state and the decision by the Murphy administration to fully fund the New Jersey’s yearly pension bill for the first time in decades.
Under the upgrade, the state’s rating with S&P stands at BBB plus, where it’s been since November, but the outlook on the state’s financial health was raised from stable to positive.
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 have 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.
“The outlook revision reflects our view that the decisions made by the state on how to spend surplus revenues in fiscal years 2021 and 2022 could position New Jersey to materially improve its long-term liability profile,” reads a prepared statement from Tiffany Tribbit, an analyst at S&P.
Moody’s made a similar move in July, citing the state’s “improved fiscal governance and management” as the reasoning for upgrading the bond outlook from stable to positive.
“The revision to the positive outlook reflects the state’s better-than-expected financial position and improved governance profile that will enhance budget flexibility during the coronavirus recovery,” Moody’s said.
Getting NJ’s ‘fiscal house in order’
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.
“We have been entrusted by the people of New Jersey to get our fiscal house in order,” Gov. Phil Murphy said in an Aug. 4 statement. “The S&P Global Rating outlook upgrade, in addition to the recent outlook upgrade from Moody’s, shows that we’ve made significant progress.”
The lack of full pension funding had been the basis for a combined 11 credit downgrades across Moody’s, S&P and the third major Wall Street agency 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.
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.
“[I]ncreased 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,” the Moody’s report from last month reads.
S&P said that those financial realities have created a “significant structural imbalance and [put] pressure on future budgets.”
Elizabeth Maher Muoio, who heads the New Jersey Treasury Department, assured that steps like “making record pension payments, reining in soaring health care costs, controlling debt, building our surplus, and pursuing reliable and recurring revenue sources” have nonetheless gotten the nod of S&P.