New Jersey Bond Rating Boosted to Stable as Pension Strain Ebbs

(Bloomberg) -- The outlook for New Jersey’s bond rating was lifted to stable from negative by S&P Global Ratings, signaling an end to the string of downgrades that have weighed on the state since the end of the recession.

The rating company said in a statement that it changed its outlook based on the expectation that financial strain on the state’s pension system won’t worsen over the next year and may even improve as long as there is no recession. S&P said the current year’s budget increases the annual retirement contribution to 50 percent of what actuaries say is needed, up from 30 percent in 2016.

Despite the less negative outlook, S&P said that the Garden State’s severely underfunded pensions remain cause for concern and are the main reason why it still rates New Jersey lower than any other state but Illinois.

New Jersey’s pensions have increased the financial pressure on the state for years because governors from both parties have failed to pay enough into the fund each year to cover all the benefits that have been promised. S&P downgraded New Jersey in March after Governor Chris Christie’s proposed budget continued the practice. In July, officials in Trenton approved a plan to allocate $1 billion from the state’s lottery proceeds to the retirement funds for teachers and other employees in an effort to chip away at the growing debt.