Nearly three years after sinking to the verge of a junk credit rating, New Jersey’s largest city is now on the verge of an upgrade.
Moody’s Investors Service revised its outlook on Newark's Baa3 rating to positive from negative Thursday citing improved fund balance and liquidity levels aided by economic development projects.
Newark’s bonds were downgraded two notches in May 2015 to the lowest investment-grade rating due to a negative fund balance and reliance on market access for cash flow, but analyst Douglas Goldmacher said the city is now positioned for an upgrade in the next one to two years.
“Newark’s outlook change reflects Moody’s expectations that the recent positive financial operations in Newark will continue, leading to a strengthened reserve and liquidity position,” said Goldmacher in Thursday’s report. “The outlook also incorporates our expectations that ongoing redevelopment will lead to material tax base expansion.”
Goldmacher noted that after facing several years with a declining tax base, Newark experienced two consecutive years of growth for the first time since the 2008 recession at a level of $16 billion for 2017.
“Newark is prioritizing a combination of affordable and market-rate housing while also making a big push to bring in commercial and national brand retail operations,” said Goldmacher. “The city is an active partner is the redevelopment efforts and has spent money clearing blighted properties, building and expanding parks, and working to improve infrastructure.”
After having negative fund balance in 2014, Newark improved its fiscal health the next years finishing 2016 with net cash of $64.8 million, or 9.8% of revenues. Goldmacher noted that Newark has historically been highly reliant on tax anticipation notes, but for 2017 issued none and city officials do not anticipate needing to borrow for current expenses in 2018.
“Moody’s upgrade of Newark’s rating from negative to positive is confirmation of our progress in restoring the city’s financial health.” Mayor Ras Baraka said in a statement.