A Wall Street rating agency hit New Jersey with a credit downgrade Friday, as the state prepares to sell as much as $4.3 billion in bonds later this month to offset potential revenue losses amid the pandemic recession.
The downgrade is the state’s second since the coronavirus made landfall in the Garden State in March, which Gov. Phil Murphy said threatened to wreck state tax collections.
It comes from S&P Global Ratings, one of three major ratings houses. It lowered its rating on New Jersey general obligation bonds from A- to BBB+ and its underlying ratings from BBB+ to BBB.
The rating agency cited New Jersey’s latest revenue problems and planned deficit spending, brought on by the pandemic, and its longterm underfunding of the public worker pension system.
“The downgrade reflects our view that New Jersey will continue to have a significant structural deficit that will be difficult to close in the coming years because of decreased revenues as a result of the COVID-19 pandemic, combined with high and increasing debt, pension, and other postemployment benefit liabilities,” S&P analyst David Hitchcock said in statement.
S&P could change the state’s credit outlook or rating again if the state doesn’t get that structural deficit under control — or New Jersey could improve its rating if it boosts pension funding or chips away at the structural budget deficit without taking on more debt, according to the analysis.
The rating agency fixed New Jersey’s outlook at “stable” for now, expressing confidence the state will reduce to some extent the structural deficit.
“We faced a once-in-a-century pandemic that created an unprecedented fiscal crisis,” Treasurer Elizabeth Muoio said in a statement. “From the outset, we have taken a balanced, fiscally responsible approach that involved carefully targeted spending reductions, a measured approach to borrowing, and new tax initiatives — all of which were designed to avoid harming those who have already been disproportionately hurt by the pandemic.
“Our goal was to avoid the type of draconian cuts made during the Great Recession, which stymied our economic recovery and led to New Jersey being one of the last states to emerge from the recession.”
The Department of Treasury on Friday afternoon issued a revised revenue picture ahead of its plan to issue bonds under the borrowing plan, as required by the state Supreme Court this summer. The court ruled unanimously that New Jersey could take on billions of dollars in new debt in response to the coronavirus fiscal emergency, provided the treasurer first certify the projected shortfall.
New Jersey’s revenue forecasts have improved by nearly $400 million since Murphy signed the budget into law at the end of September, according to the new certification.
Treasury won’t release October’s month revenue report until the middle of the month. The September numbers showed year-over-year growth in sales tax collections. Read from source….