By Brian Chappatta
NEW YORK - Rhode Island plans to sell $118.5 million of general-obligation bonds as fiscal strains have led to downgrades for cities - including Providence.
Proceeds from the sale will be used to buy back debt, according to an offering document.
Providence, the biggest municipality in the smallest U.S. state, had its rating cut to two steps above junk grade last month by Fitch Ratings. Governor Lincoln D. Chafee has said that local finances are in crisis.
“The state’s persistent revenue under-performance and spending challenges” were cited by Moody’s Investors Service in a report yesterday, explaining its Aa2 rating on the bonds, third-highest.
Moody’s also cited Rhode Island’s record of using one-shot solutions to balance its budget and short-term borrowing to maintain cash flow.
Treasurer Gina Raimondo, a Democrat, led an overhaul of the state’s pension in November to reduce its unfunded liabilities. She and Chafee, an independent, have pushed for similar changes in retirement plans for municipal workers.
Central Falls, Rhode Island’s smallest city, cited its obligations to retirees when it entered bankruptcy last year. Providence is among five communities in fiscal distress, according to the governor.
“After three years of operating deficits, the city’s cash position is very weak and the current budget gap presents cash- flow problems during the final two months of the fiscal year,” Fitch said last month in a report on Providence.
The company cut the city’s credit score to BBB, two steps above noninvestment grade, from A, three levels higher.