New Jersey’s tax revenues are on track to outperform expectations this year by more than $3 billion, prompting a Wall Street rating agency Friday to raise the state’s credit outlook to “stable.”
The move by Moody’s Investors Services comes almost exactly one year after the firm lowered New Jersey’s outlook to negative amid the first wave of the coronavirus pandemic and fears of economic collapse.
Moody’s said at the time the negative outlook reflected its expectation that with low reserves and big structural deficits the state would struggle to make ends meet during the health and economic crises. Just a week later, New Jersey was hit with a downgrade to “A-” by Fitch Ratings — the state’s first downgrade since 2017.
It was downgraded again in November by S&P Global Ratings as Gov. Phil Murphy’s administration was preparing for a more than $4 billion bond sale to offset slumping tax revenues.
The new, stable outlook suggests New Jersey’s credit rating is not expected to change in the next year or two, Moody’s said in a news release.
“Due to better-than-expected revenue performance, the state will end fiscal 2021 with record-high liquidity and fund balance, but also a large structural budget gap and higher debt and fixed costs related to deficit financing,” analysts said.
“However, large fund balances, plans to accelerate pension contributions and fund pay-go capital projects, and the recent demonstration of the governor’s broad powers to reduce expenditures mid-year reflect overall increased budget flexibility compared to the beginning of the coronavirus pandemic.”
Gov. Phil Murphy in February raised the revenue forecast for the fiscal year ending June 30 by $3.2 billion, putting the state on track to end the year with more than $6.3 billion in reserves. The nonpartisan Office of Legislative Services projected revenues could wind up even $428 million higher.
His administration in November borrowed about $4 billion to close what the Department of Treasury estimated was a $4.3 billion revenue shortfall. Budget analysts and lawmakers say it is now clear the borrowing was not necessary to balance the budget.
Murphy defended the borrowing on Wednesday, saying “We make the decisions at the time we make them based on the best information we have.”
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Samantha Marcus may be reached at smarcus@njadvancemedia.com.
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