New Jersey emerged from a tumultuous budget season with at least one rating intact, after Standard & Poor's Corp. yesterday announced it would keep its assessment at AA-plus.
The rating agency also removed New Jersey from negative CreditWatch, but switched its long-term outlook to negative from stable.
"The immediate pressure is off, but it's fair to say they're not out of the woods," said Sally Rutherford, a senior vice president at Standard & Poor's.
Despite bad economic news and a severe political battle over the shape of the fiscal 1993 budget, including an unprecedented veto from Gov. Jim Florio, New Jersey's relatively strong economy and history of prudence helped stave off further credit deterioration for now.
"Although New Jersey's financial position has been under pressure in the last three years, the state's historic management through its treasury and budget have produced balanced operations annually for at least 40 consecutive years," a statement from Standard & Poor's said. "This is a unique achievement in state government history."
The New Jersey Legislature last week overrode Gov. Florio's veto, putting in place a $14.6 billion spending plan that incorporates $1.1 billion in budget cuts and a $608 million sales-tax rollback.
But problems remain. In explaining the new negative outlook, Standard & Poor's pointed to two items in particular that remain unresolved and that led to the negative CreditWatch designation in the first place: the federal government's rejection of a $450 million Medicaid reimbursement request, and a court ruling that effectively dismantled New Jersey's system for paying health costs for the poor and uninsured.
Since CreditWatch is used for issues likely to affect credit quality in the short term, the rating agency's "outlook" was a more appropriate way to warn investors of long-term credit risks, Ms. Rutherford explained.
New Jersey Republicans said the rating agency's action was a vindication of their budget.
"This major development should put to rest the administration's doomsaying," said Sen. Robert Littell, R-Sussex, chairman of the Senate Budget and Appropriations Committee.
But Treasurer Samuel Crane took the news from Standard & Poor's as evidence that Gov. Florio was right to veto the budget.
"I am concerned about the state's creditworthiness in the eyes of investors now that they see the budget plan the Legislature has put in place," Treasurer Crane said yesterday. "I hope the Legislature acts to remove the cloud of doubt that results from the deficiencies in its spending plan."
Ms. Rutherford said the rating agency was afraid lawmakers would resort to several one-shots to balance the budget. "But we got a budget that is more or less balanced, which relies on reductions in spending," she said. "It gets them over the immediate hurdle, but there are still some questions about their ability to maintain their AA-plus rating over the next year to two."
Another long-term issue is the projected 1993 surplus, which current estimates peg at just $26 million -- too small for a $14.6 billion budget, according to Florio administration officials. Lawmakers have recognized the problem and are working on supplemental budget bills that could shift funds to bolster the meager cash reserve.
Standard & Poor's expressed concern about the use of a large one-time revenue source, in the form of a revaluation of state pension assets. The $770 million windfall was created by switching the state to a market-based system of assessing pension asset from one based on book value.
Standard & Poor's said the one-shot could be mitigated if the Legislature's moves to increase the surplus are successful.
The state used another one-shot, the sale of a piece of highway to the New Jersey Turnpike Authority for $400 million, to balance the fiscal 1992 budget.
Yesterday's rating action affects $3.4 billion of general obligation bonds and $1.3 billion of various lease and appropriation-backed debt. More than $785 million of debt from 12 colleges and universities around the state are also affected.
Both Moody's Investors Service and Fitch Investors Service rate New Jersey triple-A. State officials say the expect to learn later this week whether those gilt-edged ratings have held.
