For the fourth time in 13 months, and marking the second notice from Moody’s Investor Service in just over a year, New Jersey has seen its credit rating upgraded.

Moody’s announced the change April 6 from A2 to A1 for both the state’s issuer rating and to the general obligation and Garden State Preservation bonds, citing the state’s pension payments and surplus as contributing factors.

“New Jersey’s issuer rating upgrade to A1 incorporates a solid economic recovery, with job gains leading the region and driving employment above the state’s pre-pandemic peak,” Moody’s said.

Jobs numbers for March will be released by the Department of Labor Statistics April 7. In February the state added 4,600 jobs; the month before it added more than 19,000.

“It is supported by the state’s commitment to full, actuarial pension contributions through fiscal 2024 (starting 7/1/2023) and its additional allocations of funds to a program to defease debt and cash-fund capital projects,” Moody’s said. “These factors underscore continuing improvement in New Jersey’s governance characteristics, already reflected in the state’s G-1 governance score.”

For the fourth year running, Gov. Phil Murphy’s proposed state spending plan for 2024 again includes making the full, $7.1 billion, pension payment.

The $53.1 billion FY2024 budget outline also includes a $10 billion surplus.

“An unprecedented level of budgetary surplus should position the state to respond to any economic dislocations caused by rising interest rates or other near-term conditions, while also maintaining the commitment to diligent long-term liability management,” Moody’s stated.

In an April 6 statement, the governor celebrated the news.

“This upgrade from Moody’s is further proof that the choices we’ve made to prioritize our surplus and our long-neglected pension contributions have paid off,” he said.  “We’ve achieved this sound financial footing while continuing to invest in the essential programs New Jerseyans rely on.”

State Treasurer Elizabeth Maher Muoio echoed the sentiment, “This latest upgrade is a testament to the administration’s diligent efforts to put New Jersey on a sound fiscal foundation,” she said. “Gov. Murphy’s focus on making the full pension payment in each of the last three years, while at the same time paying down the State’s outstanding debt and building a more sustainable surplus has paid dividends in the form of four credit rating upgrades in the past 13 months.”

According to the report, “The stable outlook is supported by the likelihood the state will continue its current practices for managing reserves and long-term liabilities, and by the expectation that the state will maintain a comparatively large budgetary surplus even in the event of near-term economic dislocations.”

However, it cautions, “The state nevertheless remains subject to long-term liability and fixed-cost burdens much more substantial than those of most other states.”

Prior to the recent string of credit bumps, the Garden State had not received an upgrade since 2005, according to the New Jersey Office of Public Finance.

In March 2022, Moody’s upgraded the state’s general obligation bonds from A3 to A2, followed by S&P, which lifted its rating from BBB+ to A-. In September, Fitch Ratings raised its rating from A- to A.

Citing U.S. Census Bureau data, Moody’s identified New Jersey as the 11th biggest state based on population, with an estimated 9.26 million residents in 2022. Based on 2021 GDP, the Garden State was ninth, with approximately $566.9 billion (or $682.9 billion on a current-dollar basis).

Looking ahead, Moody’s defined factors that could lead to either upgrades or downgrades of the state’s ratings.

Upgrades

• Legislative or other actions to require or encourage continuation of full, actuarial pension contributions
• Maintenance of budgetary balances and liquidity significantly above low levels of the past
• Stable debt and pension metrics, including declines in fixed costs as a share of own-source revenue

Downgrades

• Pension contribution reductions to levels substantially below those that are actuarially indicated
• Reliance on a preponderance of non-recurring actions to address substantial budget deficits
• Share depletion of state’s available balances, leading to reduction in liquidity, without a clear path to rebuilding it
• Substantial growth in unfunded pension liabilities or other debt that elevates fixed costs