When Moody's Investors Service released a mixed report on New Jersey's financial outlook last week, Republicans seized the opportunity to argue that the state's financial glass was half empty. Democrats saw it as half full.

Both sides are motivated, in part, by the intense governor's race, but each perspective has validity.

The credit rating helps to determine how much interest the state will pay to borrow money for capital projects, although the markets do not always act in the way that a credit rating would seem to suggest.

Moody's reaffirmed New Jersey's rating for a $200 million school-construction bond issue expected this week, but also revised its "outlook" on the state's general-obligation bonds from stable to negative.

John Cline, vice president for rating communications for Moody's, said a negative outlook means the agency believes there is a 50 percent or greater chance that the credit rating will decline in the next 12 to 18 months.

The Corzine administration jumped on the fact that Moody's had maintained the state's credit rating, in the face of a grueling recession.

"The affirmation of New Jersey's credit rating by all three rating agencies is a sign of confidence in Gov. Corzine's overall handling of fiscal matters in these historically challenging economic times," Treasury spokesman Tom Vincz said.

In addition to Moody's, Fitch and S&P also recently affirmed their ratings of the state's credit, Vincz said. S&P's outlook for New Jersey remains "stable."

Republicans took the opposite view, focusing on Moody's change in outlook for New Jersey.

"It strains credulity to greet a critical report by claiming it is good news and refusing to address any of the report's underlying concerns," said Senate Republican Leader Tom Kean, of Union County. "Gov. Corzine is deluding himself and the taxpayers if he refuses to acknowledge an $8 billion structural deficit, much less do anything about it."

Moody's report, released last week, attributes the change in outlook to various factors, some of which Corzine inherited from previous Republican and Democratic administrations.

Corzine did have control over some of the factors, but given the depth of the recession, it is difficult to say whether alternatives would have served the state's finances better.

Moody's was critical, for example, of state use of nonrecurring revenues to fill budget gaps, "leaving the state with a sizable structural imbalance."

Corzine repeatedly has railed against the use of so-called one-shot revenues, or one-time budget fixes that cannot be tapped again. Examples in the current budget include decreasing the state's contribution for pension funding by $940 million and increasing, for one year, income taxes for the state's wealthiest residents.

While fiscal experts typically frown on one-shot revenues, some argue they might be the least harmful option in the most difficult financial times.

Moody's also pointed to the state's high debt burden, low pension-funding ratio, and high post-retirement health-insurance liabilities as contributing factors to the change in outlook.

Like some other comparably rated states, the report said, New Jersey has depleted its reserves during the recession, which would leave the state in a tough spot if revenues came in lower than expected.

Moody's also anticipates New Jersey will recover more slowly from the recession than the country as a whole because several of the state's key industries, including financial services and pharmaceuticals, have been hit hard.

Arturo Perez, a fiscal-policy analyst for the National Conference of State Legislatures, said Moody's has negative outlooks for several other states, including Kentucky, Wisconsin, Michigan, Illinois, Rhode Island, and Florida.

Since May, Moody's has downgraded ratings for California, Nevada, and Ohio. Illinois is on a watch list for a possible downgrade.

In April, Moody's assigned a negative outlook to the entire local-government sector, including municipalities and schools.

Perez said the mixed report for New Jersey was "not contradictory in any way because of the complicated nature of making ratings on any given state."

"New Jersey is not alone in having budget problems because of the economy," said Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities in Washington. "Many of the things they did are what other states did."

Contact staff writer Adrienne Lu at 609-989-8990 or alu@phillynews.com.