New Jersey is on track to maintain its rating of A despite "persistent challenges," according to Fitch Ratings.

Fitch analyst Marcy Block wrote Tuesday that New Jersey has recently experienced economic improvement after its slow recovery from the 2008 recession that, if sustained, would enhance its budget performance. She cautioned that the positive momentum is offset by the 2016 funding agreement to replenish the state's Transportation Trust Fund that exacerbated long-term budget challenges, with Fitch estimating $8.4 billion in operating fund revenue losses over eight years.

Block's report emphasized New Jersey's second-lowest rating among the states as it grapples with "woefully" underfunded pensions, rising other-post-employment benefit liabilities, slim reserves and high outstanding debt.

New Jersey Gov. Chris Christie's final budget before leaving office is in danger of missing a midnight deadline that would trigger the state's first government shutdown since 2006.
New Jersey Gov. Chris Christie's final budget before leaving office is in danger of missing a midnight deadline that would trigger the state's first government shutdown since 2006. Bloomberg News

She said Gov. Chris Christie's 2018 budget proposal, with a pension payment equal to 50% of the actuarially required level, meets Fitch's funding expectations "given the state's policies and rhetoric in recent years,” but said the liability burden will continue to hamper the Garden State.

"The state's inherent credit strengths have been offset by an evidenced lack of consensus on reforms to its chronic deferral of liability funding that has progressively diminished its operating flexibility," she wrote.

Block said Fitch is closely monitoring progress on 2018 budget negotiations to see if the spending plan is based on realistic revenue expectations. She said April personal income tax collections could also indicate the state's fiscal direction.

Fitch has maintained the A issuer default rating on New Jersey since downgrading the state twice in 2014. The outlook is stable.

The state's general obligation bonds are rated A3 by Moody's Investors Service, A-minus by S&P Global Ratings and A by Kroll Bond Rating Agency.

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