Jersey City, New Jersey, could be headed into financial trouble, according to a rating agency that accompanied its recent downgrade of the city with unusually blunt language.
Moody Ratings views Jersey City as "a financially struggling city with a deteriorating liquidity profile," its analysts wrote Dec. 3 when they downgraded the city to A2 from A1, keeping the negative outlook it assigned in June. "The steps that would be necessary to restore a sound fiscal profile are becoming increasingly drastic."
The downgrade came in connection with Jersey City's plans to issue $36.5 million of emergency notes. That's part of the problem, according to Moody's, which cited "the ongoing trend of financing expenditures through the issuance of a growing balance of emergency notes."
S&P Global Ratings downgraded Jersey City to A from A-plus in June; its outlook on the city is stable. Fitch Ratings rates Jersey City A-plus with a stable outlook.
Mayor Steven Fulop's press secretary, Kim Wallace-Scalcione, defended Jersey City's financial track record in a statement.
"Jersey City has maintained one of the strongest financial records in the state for over a decade, including earning an upgrade to A1 a year after Mayor Fulop took office [in 2013] and winning a national financial forecasting award during COVID," Wallace-Scalcione said, "all while keeping taxes flat for residents without the state aid other nearby cities received to close budget gaps."
Moody's analyst Susanne Murray traces Jersey City's fiscal woes back to the pandemic.
"A lot of places in the state saw the pandemic as an opportunity to be conservative and build reserves," Murray said, "Jersey City was hit a little bit harder than most, I think, because they're such a big municipality, [and] had so many services to offer."
Jersey City is the second-most populous city in the state, with more than 290,000 residents.
The city was on rough footing and has struggled to respond to challenges in the years since, Murray said. High inflation and rising healthcare added further pressure.
Wallace-Scalcione said the city's healthcare costs have increased 20%. She added that the city is legally required to address "tax appeals from various corporations citing COVID revenue losses."
To address the budget challenges, the city began issuing emergency notes and special emergency notes, which Murray said is a common strategy for New Jersey municipalities.
Jersey City was one of many municipalities to issue emergency notes to deal with the pandemic, Murray said. But in the years since, as the city's expenditures grew faster than anticipated, it kept relying on them to keep up with day-to-day operations.
"The city's available reserves net of these notes is negative," Moody's wrote in the downgrade report. "It likely remains in a deficit position. A realistic path to substantial recovery remains unclear."
The city has $1.4 billion of outstanding debt, which Murray said is fairly high for a New Jersey municipality. It also hasn't built up the reserves that many state and local governments have over the past few years.
"Coming into financial pressures with expenditure growth occurring not just in the state, but nationwide, there most likely will need to be both expenditure reduction and revenue enhancement in whatever shape or form the city can muster," Murray said.
The bulk of Jersey City's revenue comes from property taxes, Murray said. Hiking property taxes is the easiest solution, she said. The city's economy can support it, and municipalities have more control over their property taxes in New Jersey than in other states.
The city also receives revenue from PILOT payments — payments in lieu of taxes, a strategy to incentivize development, Murray said. Jersey City is growing rapidly enough that it's moving away from granting new PILOT agreements, she said, but the payments still make up a significant amount of its revenue.
Fitch analyst Kevin Dolan said the city's leaders are addressing the city's financial problems, and have been getting closer to right-sizing the budget for the past few years.
When Fitch downgraded Jersey City in 2023, it cited the same problems as Moody's. But its analysts feel the issues are already incorporated into the rating, so they assign a stable outlook, Dolan said. He added that the A-plus rating, affirmed in September, is below average for Fitch's portfolio.
"They have lowered the use of their budgeted fund balance, and they continue to see growth in their tax base and population as well," Dolan said. "That's supporting new revenue generation."
On Dec. 2, Jersey City voters elected James Solomon as its new mayor. Fulop didn't seek a fourth term, entering the Democratic primary for governor, which was won by Mikie Sherrill, who went on to win the general election.
Murray said the new officials could be a "good change of pace," depending on their governance choices. She noted that incumbent mayor Fulop had been in office for many years.
Solomon has expressed a desire to
"For every year that I have served on the council, I have voted against this administration's budgets because they failed to invest in working families or place our city on firm financial footing," Solomon said in a statement. "We need to clean house, bring in a top-notch budget team, and do proper, long-term financial planning. I have a plan to do it."
But Murray warned that Solomon will face headwinds — as will nearly every municipality in 2026.
"The city will introduce its 2026 budget in the next couple of months," Murray said.
"Within that timeframe, it could be a little difficult to cut expenditures drastically, depending on union contracts being in place, or healthcare [cost] increases that are coming down the pipe," she said.
"The negative outlook is reflecting that timeframe," Murray said. "How much can they really do within the next couple of months?"
The $36.5 million of taxable GO emergency notes priced Thursday, according to a posting on the Municipal Securities Rulemaking Board's EMMA website. The notes, which mature Dec. 26, 2026, priced to yield 3.75%.
Moody's assigned the emergency notes its top MIG 1 short-term rating, and affirmed the MIG 1 rating on outstanding notes.
