Fitch: New Jersey and New York on Very Different Paths

NEW YORK--()--The recent divergence in Fitch's ratings of New Jersey and New York is the result of different approaches to budgeting and fiscal management, as well as comparatively strong economic performance in New York while New Jersey lags, according to a Fitch Ratings report.

'In the last two months Fitch has taken two rating actions on state GO credits, downgrading New Jersey to 'A+' with a Negative Rating Outlook while upgrading New York to 'AA+' with a Stable Outlook. Pre-recession these two credits were seen to be broadly comparable,' said Laura Porter, Managing Director in Fitch's U.S. Public Finance group.

The New Jersey GO downgrade was triggered by the scale and lateness of the fiscal 2014 revenue shortfall and the state's likely use of one-time measures to address the gap due to its extremely narrow financial reserves. The downgrade also incorporated the state's ongoing budget strain created by overly optimistic revenue forecasts, a multitude of long-term spending pressures, and the state's repeated reliance on one-time solutions to achieve budgetary balance. Minimal cash balances have been maintained in recent years, providing limited flexibility to absorb unforeseen needs or revenue under-performance.

New York's upgrade reflected improved fiscal management practices in recent years that have resulted in timely and more sustainable budget-making. Notable recurring actions were taken to close budget gaps in the downturn, and in the recovery the state has limited the growth in spending.

For all U.S. states, fiscal 2015 budget forecasting has been cautious after 2014 misses. States have less one-time money to spend at the close of fiscal 2014 than they did this time last year and, in fact, negative 'April surprises,' due to an underestimate of the revenue boost from last year's federal tax changes, required budget retrenchment in some states. The underperformance proved manageable in most states within the standard budget processes.

State employment levels are gradually returning to pre-recession peak levels, though the pace has been slow and recovery is not as far along as might be expected given the recession officially ended nearly five years ago. Through May 2014, only 17 states and the District of Columbia had reached or exceeded their pre-recession employment peaks, and the states' median employment recovery rate was 99%.

For more information, a special report titled 'U.S. Public Finance Credit View: States' is available on the Fitch Ratings web site at www.fitchratings.com, or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: U.S. Public Finance Credit View: States

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751109

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Contacts

Fitch Ratings
Laura Porter
Managing Director
+1-212-908-0575
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Eric Kim
Director
+1-212-908-0241
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

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Contacts

Fitch Ratings
Laura Porter
Managing Director
+1-212-908-0575
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Eric Kim
Director
+1-212-908-0241
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com