New Jersey Governor Phil Murphy just got the one reward he has been after since taking office four years ago: a credit-rating upgrade.
On Wednesday, Moody’s Investors Service raised New Jersey’s credit rating, giving the state its first upgrade since 2005, after years of pension underfunding and benefit increases. An upgrade can lead to reduced borrowing costs for states, as bond investors are willing to accept lower yields from issuers considered less likely to default.
The ratings company said the upgrade of the Garden State’s general obligation bonds to A2 from A3 “incorporates the state’s continuing trends of strong revenue and liquidity and its steps to more aggressively address liability burdens, including completion of a debt-reduction program and increased pension contributions, which are consistent with improving governance and fiscal management.”
The move marked a culmination of years of financial focus by Murphy, 64, a Democrat and retired Goldman Sachs Group Inc. senior director, who took over from two-term Republican Chris Christie, under whom the state received 11 downgrades -- a record for a New Jersey governor -- from the three major ratings companies. Analysts had cited budget gaps, income lost to tax cuts, failures to make required pensions contributions and overly optimistic revenue projections.
“Our efforts to build New Jersey’s credit rating back up from decades of downgrades have yielded another positive result. This proves that facing our challenges head on -- rather than delaying and deferring – is the best way to get our house in order,” Murphy said in a statement.
Treasurer Elizabeth Maher Muoio said the state’s improved credit rating would decrease the cost of annual borrowing for the state, “saving taxpayers money now and in the future,” she said. “It also provides further evidence that we are taking the right steps on our continuing path toward fiscal security.”
Campaign Promise
Murphy had made restoring New Jersey’s good credit -- a sign of its fiscal stability -- one of his signature campaign promises. But as the state’s economy buckled under the weight of Covid-19 lockdowns, the state’s credit faltered.
New Jersey in April 2020 was downgraded by Fitch, which cited effects of the pandemic and the state’s perennially underfunded pension. S&P Global Ratings followed seven months later, echoing Fitch’s points and adding the stress of Murphy’s borrowing about $4 billion to fill spending gaps.
As the state’s economy improved, Murphy made the first full pension contribution in 25 years, built a surplus and reduced health-benefits spending. Fitch and S&P were among four ratings companies that raised the outlook on New Jersey’s debt, signaling an upgrade is more likely.
New Jersey is among a slew of states that have collected higher-than-expected income taxes since the pandemic hit as higher-income earners worked from home and reaped the rewards of gaining stock prices. That helped erase or largely reduce projected deficits facing U.S. states, which also received a large influx of federal aid. Even Connecticut and Illinois in 2021 got ratings boosts, breaking two-decade dry spells.