The New Jersey Municipal Qualified Bond Act program was slashed one notch to Baa1 by Moody's Investors Service Tuesday, eight days after Moody's downgraded New Jersey.

“The state's budget is challenged by growing pension contributions in a low revenue growth environment,” says Moody’s analyst Douglas Goldmacher.

The enhancement program's direct link to the state's general obligation rating led to the downgrade, Moody's analyst Douglas Goldmacher wrote Tuesday . New Jersey GO bonds were cut one notch to A3 from A2 on March 27 by Moody's citing the state's rising pension burden. S&P Global Ratings also dropped the state one notch in mid-November to A-minus because of expected budgetary challenges from pension liabilities and revenue volatility.

New Jersey issuers with MQBA-enhanced ratings were all cut to Baa1 Tuesday, except for Bayonne, which was slashed two notches to Baa2 due to the city's weak debt service coverage provided by qualified state aid revenues. Moody's revised its outlook on the MQBA program to stable from negative.

"The outlook matches the states stable outlook which reflects that the current A3 rating of the state is well positioned for the next 12-18 months due to solid economic performance and the expectation that any fiscal 2017 budget gaps will remain manageable," said Goldmacher. "However, in the longer term, the state's credit profile will continue to weaken as large long-term liabilities grow and the state's budget is challenged by growing pension contributions in a low revenue growth environment."

Moody's concurrently downgraded enhanced ratings associated with the New Jersey County College Enhancement Bond Program one notch to Baa1 from A3 and revised the outlook to stable from negative. The downgrade impacts bond sales from Essex County in 2008 and Passaic County in 2007.

It also downgraded the programmatic rating on the New Jersey School Bond Reserve Act (Chapter 72) to A3 from A2 and revised the outlook to stable from negative. Concurrently, Moody's downgraded to A3 from A2 the sale level ratings for all outstanding debt enhanced by Chapter 72.

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