Kroll Bond Rating Agency revised the outlook on New Jersey’s general obligation bonds to positive from stable and affirmed the state’s GO rating at A.
Additionally, Kroll assigned an A-minus rating with a positive outlook to the New Jersey Transportation Trust Fund Authority’s $750 million of Series 2022BB transportation program bonds selling next week.
KBRA said Tuesday’s revision “recognizes the appropriation of the full actuarial pension contribution in fiscal 2022 for the first time in 26 years, coupled with a trend of improved reserves since fiscal 2019.”
The rating agency said an upgrade could be warranted in the near term if full actuarially calculated pension funding continues on a go-forward basis, while operating reserves are concurrently maintained at a strong level.
Still, KBRA said “these actions may prove challenging, especially given that at least a portion of the state’s recent financial improvement was driven by deficit financing and non-recurring pandemic-related federal assistance.”
KBRA noted Gov. Phil Murphy’s administration has placed a high priority on improving the state’s overall fiscal health, while previous governors with similar aims failed to address the underfunding of the state’s pensions.
“Consistency in both pension funding and reserve maintenance will be integral to upward movement in the rating,” KBRA said.
The GO rating also reflects strength in the state’s broad and diverse employment base, high per capita personal income at 123% of the U.S., and stable demographics counter-balanced by extraordinarily high unfunded pension liabilities arising from a failure to make actuarially sound pension contributions after 1996.
Fixed costs for debt and additional continuing obligations are consequently high relative to other states, KBRA noted.
Tax-supported debt totaled $36.6 billion at the end of fiscal 2021, including $5.5 billion of GOs and $31.2 billion in obligations supported by annual appropriation by the state Legislature.
Next week, J.P. Morgan Securities is expected to price up to $750 million of the New Jersey Transportation Trust Fund Authority’s Series 2022BB transportation program bonds.
Proceeds of the sale will be used to pay state transportation system costs.
Bonds would be payable from and secured by pledged property, which consists of revenues received by the authority from the state made by appropriations.
KBRA said these bonds are special obligations secured by contract payments from the state, which has an obligation to make payments under the contract is subject to annual appropriation.
“Therefore, the NJTTFA rating is based on a one notch distinction from that of the state’s general obligation rating,” KBRA said.
Lastly, KBRA affirmed the long-term rating of A-minus and revised the outlook to positive from stable on the bonds of the New Jersey Transportation Trust Fund Authority, the New Jersey Economic Development Authority and the New Jersey Education Facilities Authority.
New Jersey’s GOs are rated A3 by Moody’s Investors Service, BBB-plus by S&P Global Ratings and A-minus by Fitch Ratings. All three revised their outlooks to positive last year.
Murphy and state Treasurer Elizabeth Maher Muoio praised KBRA’s outlook revision.
“The decisions made in our first term in office to build a surplus, address long-standing pension underfunding, and take up the fight against skyrocketing health care costs show the investment community that we are serious about righting New Jersey’s financial ship,” Murphy said in a statement Wednesday.
He added the state has avoided future debt and focused on long-term savings.
“The upgraded outlook once again reflects the choices we made to rein in soaring health care costs, control debt, pursue reliable and recurring revenue sources, address the structural imbalance we inherited and fulfill the administration’s commitment by making the first full actuarial determined pension contribution in over 20 years,” Muoio said.
On Tuesday, Murphy, fresh from an unexpectedly narrow re-election win in November, delivered his 2022 State of the State address. He said property tax reform would take a prominent place in his budget proposals.
“Over the next six or so weeks, our administration will continue undertaking the work of crafting our proposal for the fiscal 2023 state budget. That document is where the vision we set today is brought not just into relief but brought to life,” he said.
“We will continue to focus on making New Jersey more affordable for everyone. We will continue seeking fairness for our middle-class taxpayers and working families and seniors to deliver for them with concrete benefits that make their lives and those of their communities better … and the budget I put forward won’t come with any tax increases,” he said. “And we will continue our work taking on the one issue that has stood in the way of too many New Jersey families for far too long — property taxes.”
The governor, who is a Democrat, is supported by both the state Senate and General Assembly, which both have Democratic majorities.