Moody's Investors Service has raised its general obligation bond rating for New Jersey to A1 from A2, the second upgrade since March 2022.
The latest upgrade "incorporates a solid economic recovery, with job gains leading the region and driving employment above the state's pre-pandemic peak," the ratings agency said in a Thursdayreport. "It is supported by the state's commitment to full, actuarial pension contributions through fiscal 2024."
Moody's praised New Jersey for "an unprecedented level of budgetary surplus (that) should position the state to respond to any economic dislocations caused by rising interest rates or other near-term conditions, while also maintaining the commitment to diligent long-term liability management."
Moody's maintained a stable outlook on New Jersey's financial health "supported by the likelihood the state will continue its current practices for managing reserves and long-term liabilities, and by the expectation that the state will maintain a comparatively large budgetary surplus even in the event of near-term economic dislocations."
However, Moody's also cautioned against excessive optimism because the state "remains subject to long-term liability and fixed-cost burdens much more substantial than those of most other states."
The state could be hit with a downgrade if annual contributions to the state's pension system fall "substantially below those that are actuarially indicated," the report said. "Reliance on a preponderance of non-recurring actions to address substantial budget deficits" would be another source for a downgrade as would "substantial growth in unfunded pension liabilities or other debt that elevates fixed costs."