New Jersey's outlook for its general obligation bonds was raised to positive from stable on Friday by S&P Global Ratings due in part to improved financing of the state's pension system.
"The outlook revision follows the second consecutive year the state has budgeted the full annual actuarially determined contribution to its retirement systems," S&P Global Ratings credit analyst David Hitchcock, said in a Friday news release.
S&P maintained its A- rating on the state general obligation bonds.
For the fiscal year ended June 30, the state contribution to the pension system was approximately $9.1 billion, a combination of general revenue plus proceeds from the state lottery, which is a pension system asset. For the fiscal year that started July 1, the total state payment will be $6.82 billion.
"Besides high pension liabilities, the state also will continue to face pressures from its high debt and other post-employment benefit (OPEB) liabilities, despite recently strong financial performance," the news release said. "Accumulated pension and OPEB liabilities, plus high debt, create large annual costs that could pressure future budgets in the event of an economic downturn."
The state's bond rating remains under pressure because "until recently, (the state had) a history of minimal fund balances and large structural budget deficits when considering pension contribution shortfalls," S&P said, adding: "We believe these conditions could reoccur in an economic downturn."
According to the latest data, the New Jersey Pension Fund, Trenton, had $91.5 billion in assets as of May 31, the 11th month of the previous fiscal year. The unaudited net return for the first 11 months of that fiscal year was -2.86% compared to a benchmark of -1.04%.
