KBRA upgrades New Jersey based on budgeting improvements

Bloomberg News

New Jersey's years of healthier budgeting have convinced KBRA to upgrade its rating to AA-minus from A-plus — but the agency acknowledges the state's lingering poor fiscal habits.

The other rating agencies have so far chosen to leave New Jersey's current rating in place.

The upgrade extends to the state's appropriation credits, which are now rated A-plus. The upgrade comes as the New Jersey Transportation Trust Fund Authority prepares a $3 billion deal. 

The Garden State is rated Aa3 by Moody's Ratings and A-plus by S&P Global Ratings and Fitch Ratings.

"This is great news for New Jersey," Gov. Mikie Sherrill said in a statement. "This upgrade to AA-minus, the highest rating KBRA has given New Jersey since it began rating the state in 2015, reflects how we've tackled our fiscal challenges head on, and already delivered real results for New Jerseyans."

KBRA wrote in a press release the upgrade reflected the state's "increasingly well-established track record of full actuarial pension funding, substantial progress in reducing long-term liabilities and adherence to improved budget management."

New Jersey's budget suffered for years of poor reserves and unfunded liabilities. The state went more than a quarter century without making a full actuarial pension contribution. Six years ago, it began paying its pension liabilities in full.

In fiscal year 2027, the state's pension payment was $7 billion, or 12% of its budget. 

New Jersey has received 10 rating upgrades since 2022, according to the state.

Moody's and S&P upgraded the Garden State last year with the same reasoning as KBRA. Moody's analysts also cited better-maintained financial reserves, growing tax revenue and declining levels of borrowing.

New Jersey's FY 2027 budget spent $1.4 billion of the state's general fund surplus, depleting it to $6 billion.

"We enacted the most fiscally responsible budget in decades," Sherrill said in her statement, "cutting the structural deficit by more than half while delivering record property tax relief and school funding, making a full pension payment, expanding the child tax credit, and maintaining a $6 billion surplus."

"While the state has drawn down the extraordinary reserves accumulated during the pandemic only gradually, a full transition from these non-recurring funds may be challenging," KBRA wrote in the release.

New Jersey's liabilities remain high compared to other states, Fitch analysts wrote in a rating report last year. Fitch also "expects the natural growth in expenditures over time to be above revenue growth, driven by program spending demands."

The TTFA will sell the first deal to benefit from the upgrade, as it plans to price $1.67 billion of bonds the week of Sept. 14 and $1.7 billion the week of Oct. 12, according to Fitch. 

The TTFA was authorized to issue up to $2 billion of refunding bonds by the state legislature. The bonds are secured by gasoline tax revenue and, if necessary, sales tax revenue. If the TTFA chooses to refinance the full amount, it's projected to generate up to $120 million of savings.

The TTFA is now rated A-plus by KBRA, A by Fitch, A2 by Moody's and A by S&P. 

According to the TTFA, it had $20.5 billion of bonds outstanding in fiscal year 2025 and $32.5 billion of outstanding debt service.

KBRA also upgraded the New Jersey Economic Development Authority's lease revenue bonds and the New Jersey Educational Facilities Authority's higher education capital improvement fund revenue bonds to A-plus from A.