Moody’s says R.I. improving, but weak economic and demographic trends remain problems

PROVIDENCE – Rhode Island’s financial profile has improved following the economic downturn, but weak economic and demographic trends, paired with large combined debt and pension liabilities, remain sources of credit pressure, according to a report from Moody’s Investor Service issued last week.

Moody’s credited the state’s strong financial management, conservative budget forecasts and debt reduction for improving its financial position, and also said that positive job market trends and the first population increase in nearly a decade “signal a recovery taking hold.”

Moody’s upgraded the state’s outlook from negative to stable on Oct. 4.

Total employment has grown 1.3 percent year to date through August, and while that remains less than the national growth of 1.8 percent, Moody’s said the state is on track to record the highest three-year employment growth rate since the late 1990s, having grown at 1.1 percent in 2012 and 1.2 percent in 2013.

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Moody’s said unemployment is not expected to fall below 6 percent until 2017. The jobless rate was 7.6 percent in September.

The state’s negative population trends started to reverse in 2013, when a gain of 0.2 percent marked the first year of population growth recorded for the state since 2004, Moody’s said.

Rhode Island’s population count as of 2013 was 1.05 million people.

Moody’s said the resolution of litigation challenging credit-positive pension reform is unlikely before 2016, which is outside of its 18- to 24-month outlook period. Moody’s said rejection of the reforms would be credit negative.

Moodys also said that Rhode Island has the second-greatest reliance among states on lottery and gaming revenues as a share of operating revenue (11 percent), trailing only Nevada.

Rhode Island has two casino facilities, Twin River in Lincoln and Newport Grand.

“Both facilities are close to the Massachusetts border and benefited from the neighboring state’s unwillingness, until 2010, to legalize gaming. The approval of casinos next door created certain competition for gaming dollars and lost state revenues, but uncertainty over the magnitude has lingered, since casino competition is very sensitive to the proximity of facilities to one another,” the report stated.

Rhode Island projects revenue losses associated with expanded gambling in Massachusetts (in addition to an overall softening of the casino market) beginning in fiscal 2016, Moody’s said.

The state’s financial plan projections show lottery receipts dropping from about $385 million in fiscal 2015 to $339 million in fiscal 2016, $291 million in fiscal 2017 and eventually to $266 million in fiscal 2019, despite actions including the addition of table and casino-style games at the Twin River gaming facility, the report stated.

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