The New Jersey government's decision to place Newark city government under its financial control is a credit positive for the city, Moody's Investors Service said.
Newark has been under increasing financial stress in recent years. It has seen its fund balance shrink from 7.8% of revenues at the end of 2008 to 0% at the end of 2013, according to Newark. Newark's fiscal year corresponds with the calendar year.
The city's cash flow borrowing increased to $75 million this year from $55 million in 2013, according to Newark.
Moody's rates Newark's general obligation bonds Baa1 with a negative outlook and New Jersey's GO bonds A1 with a negative outlook.
Newark is the state's largest city with 278,000 residents.
The city proposed to pay off its $30 million deficit from 2013 over 10 years. In order to get state approval for this, the city had to agree to state oversight of its finances, according to nj.com.
On Oct. 8 New Jersey's Local Finance Board agreed to the oversight, which is called supervision.
On Oct. 3 new Newark mayor Ras Baraka said the city has developed a balanced budget for the current fiscal year. In the week of Oct. 9 the city adopted the budget. While most New Jersey local governments pass budgets after the fiscal year has already started, very few have passed budgets as late as Newark has in recent years, Moody's assistant vice president Josellyn Yousef said.
By gaining supervisory powers, New Jersey will have control over the city's collective bargaining agreements. The state can compel the city to cut expenditures and require employees to contribute to health benefit costs.
New Jersey has only one other city, Atlantic City, under state supervision.
Newark officials did not immediately respond to a request for comment.