NEW YORK - The city of Providence’s general obligation rating was downgraded from ‘A3’ to ‘Baa1’ by Moody’s Investors Service – a globally recognized rating company. The announcement was made on Monday, March 26.
The ranking affects $55.6 million in outstanding debt, as well as the underlying rating assigned to $247 million in debt issued for school projects by Providence through the R.I. Health and Education Building Corp.
The city’s outlook remains “negative”, according to the firm.
In addition, Moody’s downgraded the ratings assigned to the Providence Public Buildings Authority and Providence Redevelopment Authority lease revenue bonds from ‘Baa1’ to ‘Baa2’, affecting $258.3 million of outstanding debt. The new ranking is two steps above junk bond status.
The downgrade to ‘Baa1’ “reflects the city's strained financial position with diminishing liquidity and a sizeable budget gap in the current fiscal year. Despite some success in raising additional revenue and reducing expenditures, the city faces a $20 million deficit in fiscal 2012, which ends on June 30,
“Although it is possible that additional revenue from newly negotiated payments in lieu of taxes will be secured prior to year-end, the primary strategy for closing the gap is the elimination of cost of living adjustments for retirees, which reduces the city's appropriation to the locally-funded pension system by $16 million but is likely to be challenged in court.
“The city's cash position is projected to decline to by year-end, and cash flow borrowing is likely to be necessary to finance operations early in fiscal 2013,” said the report.
The rating and negative outlook reflect the city's deteriorated financial position – a $30 million projected budget gap for fiscal 2013 – the uncertain outcome of litigation challenging its ability to transfer eligible retirees to Medicare and low funding of its local pension plan.
On March 14, Fitch Ratings downgraded Providence’s bond rating from A to BBB and characterized its outlook as “negative.”