Fitch downgrades some Providence bonds

PROVIDENCE – Fitch Ratings has downgraded the city of Providence’s rating on two general obligation bonds, to BBB negative from BBB, citing financial pressure created by limited revenue growth and increasing costs, such as pension and post-employment retirement benefits.

The ratings change affects two general obligation bond series, issued in 2001 for $7.9 million and in 2013 for $30 million, according to a news release.

The city is making “slow financial progress” in increasing revenue relative to expenditures, Fitch reported on Feb. 4.

“Financial flexibility is limited considering statutory revenue limitations, a shortage of additional cost cutting solutions and variable employee overtime and health care-related costs,” the ratings service reported.

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Providence ended fiscal 2015 with a general fund deficit of $4.8 million, representing 1.1 percent of its spending, despite a $3.3 million amount appropriated for deficit elimination.

The accumulated deficit increased in the fiscal year that ended June 30 to $13.4 million, or nearly 3 percent of city spending, the ratings service reported.

The fiscal 2016 city budget, which began in July, includes a projection of modest growth, including a 2 percent rise in the property tax revenues due to new growth. Business license and parking fees also are expected to increase, by $2.8 million.

The city recently submitted a plan to the state’s Office of Auditor General, spelling out how it plans to eliminate its cumulative deficit over the next five years.

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