Fitch Ratings downgraded New Jersey's general debt one notch to A-minus from A and lowered the firm's outlook to negative from stable, citing the impact of COVID-19, long-standing "structurally imbalanced financial operations," and its "persistent underfunding of liabilities."
Fitch, in a report issued Tuesday, said the state benefits from a "diverse, high-wealth economy" that provides a "long-term positive credit factor."
However, the ratings also reflect "the constraints posed by incremental pension contribution increases that are expected to continue, crowding out other state priorities and absorbing natural revenue growth," the report said.
"The lack of meaningful reserves necessitates a search for outside liquidity support and the scale of the estimated budgetary impact is significant, absent additional federal assistance," the report said.
As for lowering the outlook to negative, the Fitch report said the firm "expects the direction of the state's credit quality to become clearer only after the immediate health crisis subsides and as the outlines of the recession and the effectiveness of the state's fiscal responses come into view."
The Fitch report's credit concerns are similar to those made by Moody's Investors Service last week. Moody's lowered its outlook to negative from stable but retained the existing A3 bond rating.