S&P Global Ratings on Thursday raised its ratings on New Jersey's general obligation bonds to A- from BBB+, citing improved state pension funding as one reason for its actions.
Although the outlook is stable, "credit pressures remain," Tiffany Tribbitt, an S&P credit analyst, said in a S&P news release Thursday.
"The upgrade reflects what we view as material improvement in the state's structural deficit and near-term liquidity, with recent surplus revenues being used to promote what we view as longer-term financial stability," she said.
The last time S&P issued a ratings upgrade for New Jersey's general obligation bonds was in July 2005.
S&P was the second rating agency to upgrade the state's general obligation bonds in the last four weeks. Moody's Investors Service on March 2 raised the general obligation bond rating to A2 from A3 due to "the state's continuing trends of strong revenue and liquidity and its steps to more aggressively address liability burdens" as well as "increased pension contributions," the ratings agency said in a March 2 news release.
The last time Moody's issued a general obligation bond upgrade for New Jersey was in May 1977.
"We are turning the page on decades of downgrades and doing what others had only talked about for years – delivering on our commitment to fully fund the pension system, saving for a rainy day and paying down debt,' Gov. Phil Murphy said in a Thursday news release reacting to the S&P upgrade.
The S&P news release said the ratings agency remains cautious given the state's "historical pension contribution underfunding and the state's legal or practical impediments to modifying the benefit structure" for the state's pension system and its other post-employment benefits, primarily health care coverage.
"However, our forward-looking view of this risk is modestly improving based on the state's full ADC contribution beginning in fiscal 2022," said the news release, referring to the actuarially determined contribution.
For the fiscal year ending June 30, 2022, Mr. Murphy proposed a $6.4 billion state contribution to the $93.8 billion New Jersey Pension Fund, Trenton, representing 100% of the actuarially determined contribution. The New Jersey Legislature, in approving his budget, added $505 million, citing federal aid for COVID-19 relief and higher-than-expected tax receipts.
For the fiscal year starting July 1, 2022, Mr. Murphy has proposed a state payment of $6.8 billion, also representing a 100% payment for the actuarially determined contribution. The Legislature must approve and Mr. Murphy must sign into law the upcoming fiscal year budget by June 30.
The state payment to the pension system is a combination of general revenues and proceeds from the state lottery, which is a pension system asset.
