Moody's Investors Service has downgraded New Jersey's general obligation bonds to A2 from A1. The outlook is negative. The ratings on the state's appropriation-backed, other GO-related debt, and intercept programs have also been lowered one notch.
SUMMARY RATING RATIONALE
The downgrade to A2 was driven by the lack of improvement in the state's weak financial position and large structural imbalance, primarily related to continued pension contribution shortfalls. We expect
liquidity and structural balance to remain very weak through fiscal 2016 - a longer period than contemplated in the A1 rating - despite some stabilization in budget performance, economy, and liquidity. Beyond fiscal 2016, the state's plan to restore long-term structural balance relies on economic growth and further pension reforms, which have uncertain timing and impact. The A2 rating also incorporates New Jersey's diverse economy and high wealth levels, as well as the governor's broad powers to reduce expenditures.
OUTLOOK
The negative outlook reflects our expectation that the state's financial and pension position will weaken further before pension reform, if successful, is implemented. Without meaningful structural changes to the state's budget, such as pension reform that dramatically improves pension affordability, the state's structural imbalance will continue to grow, and the state's rating will continue to fall.
