Upgrades buoy New Jersey with potential recession ahead

May 8, 2023

New Jersey faces the uncertain economic conditions ahead with historic reserves, a trimmed-down debt profile, and a slew of upgrades from the major bond rating agencies.

The state has received six upgrades in a little over a year, including four in April alone, one from each of the four major rating agencies.

While the state did skillfully leverage “different avenues to take advantage of paying down debt,” New Jersey “wasn’t out of the woods yet,” Marc Pfieffer, assistant director at Rutgers University’s Bloustein Local Government Research Center, said.

“Our current financial condition is based on the decisions that have been made over the last 12 months and inflation was not part of it,” Pfieffer said. “People are starting to realize that the future is not terribly rosy at the moment with the uncertainty of inflation and the uncertainty of a possible recession.”

Even after the recent upgrade, for example, New Jersey remains one of only three states with a single-A tier rating from S&P. The other 47 are rated in the double-A tier or AAA.

New Jersey officials said they expect a short and shallow recession to mark the new fiscal year under which they’ll likely continue to suffer “the slings and arrows of the bond market” considering the inflationary environment, Pfieffer said.

The state’s robust economy was surprising however, he added, driving higher revenues that are key now to padding the state’s budget for a short but potentially bumpy ride ahead.

“We should be able to get through the next year or two, which is effectively what the markets are saying,” Pfieffer said. “But everybody has uncertainty once you get out into year three and after that because we just don’t know what the world is going to look like.”

Fidelity.com, May 5,2023

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