NEWARK, NJ -  Mayor Ras Baraka touted the city receiving a slightly higher bond rating, but the major credit rating agency that gave the upgrade says Newark remains in a “challenging” financial state.

Moody’s Investor Service upgraded the city's non-contingent lease debt and custodial receipt debt from Baa3 to Baa2. Moody's affirmed the city's Baa1 rating on outstanding New Jersey Municipal Qualified Bond enhanced debt too. 

The rating affects the city's borrowing power and is similar to a credit score. The highest credit rating from Moody’s is an Aaa, while the lowest is a C. A Baa3 to Baa1 rating represents moderate credit risk. 

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“The upgrade of the underlying GOULT and GOULT-backed non-contingent lease debt ratings to Baa2 reflects the city's weak, albeit improved, fund balance and cash position, a sizeable and diverse tax base, and an elevated debt and pension burden,” Moody’s said in a statement. “The rating also incorporates the city's weak resident wealth and income levels, elevated poverty, and recent tax base growth.”

Baraka today said that Moody's upgrade to the city's rating "reaffirms that our hard work is paying off." He said it was reflective of Newark’s economic growth and “success” in recruiting new jobs and businesses that result in a larger tax base.

“It also reflects our success in offering business-stimulating abatements that are financially advantageous to the city and the fact that we have been able to end the practice of borrowing to meet current expenses,” Baraka said in a statement.

“For the people of Newark, this financial turnaround has enabled us to strengthen public safety, avoid the layoffs of the past, require developers to provide affordable housing, undertake an ambitious street-paving and infrastructure upgrade program and expand programs for seniors and young people. The City of Newark is moving forward, and Moody's decision to upgrade our rating reaffirms that our hard work is paying off."

The city's tax base is likely to steadily grow because of development and favorable proximity to New York City, according to Moody's. The agency also noted that the city has seen three consecutive years of growth after several years of tax base decline. In 2018 alone, there was a 14.5 percent tax base increase, Moody's noted.  

MORE: 5 Newark Development Projects to Watch in 2019

Moody's said the city is prioritizing affordable and market rate housing, while also pushing for commercial and national retail brands to move here. The city also attempts to give tax abatements that are also "financially advantageous,” according to Moody’s.

The credit rating agency pointed out the city's deal to bring Mars Wrigley Confectionery’s U.S. headquarters back to Newark, which could bring as many as 500 jobs.

However, residents' income still remains low. The city has a poverty rate of about 23 percent and an unemployment rate of about 7 percent as of September 2018, according to Moody’s. Comparatively, the state's unemployment rate is about 4 percent, while the federal unemployment rate is at 3.6 percent.

Current city officials have improved operating efficiencies, something that has often been a problem in the past. Analysts at Moody's took notice. 

“For years, the city's budgets and audited financial statements were notoriously late and the city's budget was often unrealistic,” Moody’s said in a statement. “Current management is making a concerted effort to improve operating efficiency and has succeeded to a considerable extent. This has directly lead to the aforementioned fund balance and liquidity improvements.

“Notable achievements have also been made on the governance side and the number of audit finding has dropped for several years in a row. Nevertheless, the city still has governance and operational issues and its ability to continue improving will be a major factor in its future credit quality.”

The city's credit challenges include historically weak budget practices, large deferred charges and a narrow reserve. Late budget adoption, a return to cash flow borrowing and increased debt burdens could lead to a credit downgrade in the future. 

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