New Jersey lines up $400M sale with outlook boost

New Jersey enters a planned $400 million sale of tax-exempt general obligation bonds on April 22 with an upward revision from Moody’s Investors Service.

Moody’s elevated its outlook on the state’s GOs to stable from negative while affirming an A3 rating, its seventh-highest. The move affects $32.3 billion of debt, the rating agency said.

New Jersey is still one of the lowest-rated states. Its rating is five notches below the Moody's median state rating of Aa1.

Moody’s cited a better-than-expected revenue performance in fiscal 2021, and the expectation that large resulting fund balances will support budget flexibility through recovery from the COVID-19 federal aid.

The state also stands to benefit from the American Rescue Plan, the latest federal aid package that President Biden signed last month.

According to U.S. Sen. Cory Booker, D-N.J., the law provides an estimated $10.2 billion for New Jersey, including about $6.4 billion for the state plus another $192 million for broadband, $1.823 billion combined for all 21 counties and $1.741 billion split among all 565 municipalities.

Thanks to federal aid, municipal bond credit overall should rise across almost every sector, said Tom Kozlik, director of municipal credit and strategy for Hilltop Securities.

“We now expect that public finance rating upgrades will outpace downgrades in 2021 and most likely in 2022,” he said.

The outlook revision validates Democratic Gov. Phil Murphy’s decision to use the stronger-than-anticipated revenues to build its surplus and accelerate its pension payment, according to state Treasurer Elizabeth Maher Muoio.

“We saw what happened during the Great Recession when New Jersey chose to cut its way out of a crisis and ended up being one of the last states to fully recover,” Muoio said.

A stable outlook translates to stability and the expectation the rating should not change over 18 to 24 months, Moody’s said, while a negative outlook cites downward pressure.

Murphy’s $44.8 billion fiscal 2022 budget before lawmakers would raise spending by more than 10% and earmark about $6.4 billion toward pensions in what would be the Garden State’s first actuarially required contribution in 25 years.

Kroll Bond Rating Agency, while praising the contribution, warned that “significant [year-over-year] increase in appropriations in the absence of commensurate increases in recurring revenues may challenge the state’s ability to maintain structural balance absent revenue enhancements in the years ahead.”

Kroll and Fitch Ratings assign Garden State GOs A and A-minus, respectively. Kroll and Fitch assign respective ratings of stable and negative. S&P Global Ratings assigns a BBB-plus rating with a stable outlook.

Fitch said use of federal aid to support longer-term structural improvement and avoiding fiscal imbalances as federal funds expire could result in an outlook revision to stable.

Moody's also affirmed the state's A3 rated bonds issued by the Garden State Preservation Trust, NJ; the Baa1 and Baa2 rated appropriation-backed debt; Baa1 rated moral obligation debt issued by the South Jersey Port Corp.; It also affirmed the Baa1 rated New Jersey County College Enhancement Bond Program Chapter 12; the Baa1 rated New Jersey Municipal Qualified Bond Program and New Jersey Qualified School Bond Program intercept programs.

Moody’s also affirmed the the Baa2 rated Cigarette Tax Revenue Bonds issued by the New Jersey Economic Development Authority; the Baa1 on the New Jersey Transportation Trust Fund Authority's federal highway reimbursement revenue notes (GARVEEs); and the A3 on New Jersey Transit Corp.'s Series 2014A grant anticipation notes.