Fitch assigns R.I. bonds AA rating, takes no action on failed pension settlement vote

Fitch Ratings has assigned a AA rating to Rhode Island’s $79.5 million in 2014 consolidated capital-development general-obligation bonds, the agency announced Wednesday. More

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Fitch assigns R.I. bonds AA rating, takes no action on failed pension settlement vote

Posted 4/10/14

PROVIDENCE – Fitch Ratings has assigned a AA rating to Rhode Island’s $79.5 million in 2014 consolidated capital-development general-obligation bonds, the agency announced Wednesday.

The bonds are expected to sell the week of April 21.

In addition, Fitch affirmed the AA rating of the state’s $1.16 billion in outstanding GO bonds and the AA- rating of $556.6 million in outstanding appropriation-backed debt.

The rating outlook for all three bonds is stable.

Fitch cited several factors for the rating, including strong fiscal management, improved financial performance and tax revenue, and moderation of the state’s unfunded liabilities.

“Following a period of persistent weakening during the recession, the state’s revenue performance shows signs of recovery,” the report stated. “The state’s financial operations are conservatively managed, and the state acts proactively to close budget gaps.”

The Fitch report also mentioned the state pension reform lawsuit and the 38 Studios moral obligation bond, both of which could negatively impact the state’s fiscal standing.

“Litigation around recent pension reforms is ongoing, and a resolution that substantively reduces the enacted savings for the state could trigger rating concern,” said the report. Though Fitch cited the recent renewal of mediation talks after the police unions voted last week to reject the proposed settlement of the suit, the rating agency did not take any rating action in response to the failed vote.

“Had it been approved, Fitch viewed the settlement agreement as a favorable means for the state to resolve a significant point of uncertainty while retaining the bulk of savings to the state from [the Rhode Island Retirement Security Act],” Fitch said. “The agreement’s failure maintains the status quo.”

Regarding the 38 Studios bond, Fitch wrote, “The governor’s proposed fiscal 2015 budget includes the next payment on the debt, which is significantly higher than the fiscal 2014 payment which the legislature approved despite some political opposition. Failure to meet that commitment going forward would exert negative rating pressure.”

While Rhode Island’s revised fiscal 2014 general revenue fund tax revenue indicates a fourth consecutive year of growth, Fitch anticipates continued below-average economic growth for the state as its pace of recovery continues to lag national trends, the report said.

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