Moody’s Inverstor Service this week assigned a Aa2 rating, its third highest, to the state’s recent bond issues totaling about $584 million in borrowing.
The agency said the Aa2 rating reflects the state’s “broad, diverse economy and high resident wealth levels; and weakening, although still positive, reserves and liquidity.”
Those strengths are offset, Moody’s said by a large chunk of unfunded retiree benefits that include pension and health care costs.
But in rating the bonds, the agency changed its outlook on the state’s finances from stable to negative, reflecting what it says will be the state’s challenge in closing its structural budget gap, among other issues. According to the ratings agency, the outlook also applies to more than $30 billion in previously issued debt.
“The assignment of a negative outlook reflects our belief that the state will be challenged to fund its structural budget gap, particularly in light of its failure to fund pension contributions in the 2010 and 2011 budgets and the expiration of federal stimulus funding in fiscal 2012 as well as our expectation that New Jersey’s economic recovery will be slow,” the agency said in its ratings note.
As part of its rating Moody’s addresses several issues that could drive the rating both up and down. Among the threats to the state’s credit rating would be a failure to follow through on the governor’s pension and health care reform measures, the agency said.
Yesterday, State Treasurer Andrew Sidamon-Eristoff said the agency only reaffirmed what Gov. Chris Christie has been saying as he beats the drum on pension and health care reform.
“The Moody’s report does reinforce that rapid passage of Governor Christie’s reform programs is critical to preserving the state’s long-term fiscal integrity,” Sidamon-Eristoff said. “The report recognized that the Governor had implemented notable spending reductions in the 2011 budget while indicating that future ratings would, focus on the relative resiliency of the state’s economy and the administration’s ability to demonstrate progress toward reducing the state’s structural budget imbalance and addressing unfunded long-term liabilities.”