S&P Global Ratings cut New Jersey's general obligation bond rating one notch to BBB-plus from A-minus, citing "a significant structural deficit that will be difficult to close in the coming years."
The firm announced the rating reduction Friday. The reasons include "decreased revenues as a result of the COVID-19 pandemic combined with high and increasing debt, pension and other post-employment benefit liabilities," David Hitchcock, S&P Global Ratings credit analyst, said in a news release.
The firm forecast New Jersey would suffer a "large structural operating deficit, which we calculate at 15.9% of appropriations" for the current fiscal year.
The state's rating also is affected by a "large unfunded pension liability, a low pension funded ratio and a history of substantially underfunding the state retirement systems' annual (actuarially determined contribution), which in our view has created significant structural imbalance and puts pressure on future budgets," the firm said.
The state paid 68% of the recommended actuarially determined contribution in the previous fiscal year and has proposed making a 78% payment for the current fiscal year.
Separately, the state announced on Friday it would borrow $4.29 billion during the current fiscal year under the COVID-19 Emergency Bond Act, which issuing general obligation bonds to make up revenue shortfalls caused by the coronavirus. The law was enacted in July, and the state expects to issue the bonds on Nov. 18, according to a state news release.