Fitch upgrades Pawtucket’s bonds, revises outlook to stable

THE CITY OF PAWTUCKET's outstanding general obligation bonds have been upgraded to BBB+ from BBB-, according to Fitch Ratings. / COURTESY CITY OF PAWTUCKET
THE CITY OF PAWTUCKET's outstanding general obligation bonds have been upgraded to BBB+ from BBB-, according to Fitch Ratings. / COURTESY CITY OF PAWTUCKET

PAWTUCKET – Fitch Ratings has upgraded the ratings on Pawtucket’s outstanding general obligation bonds to BBB+ from BBB-, and revised the rating outlook to stable from positive.
Fitch upgraded $3.98 million in series 2001 bonds and $8.82 million in series 2005 bonds, saying the two-notch jump reflects a significant improvement in operations by the city and School Department, including the rebuilding of reserve levels.
Fitch said the Pawtucket School Department also successfully eliminated its cumulative deficit two years earlier than planned.
However, Fitch said the city’s unfunded pension and other post-unemployment benefit liabilities are “very high and costs are growing,” noting the city has been making its full pension annual required contributions after a period of underfunding.
The city also struggles with low wealth levels, and an unemployment rate that exceeds the state rate, Fitch said. Pawtucket’s jobless rate was 9 percent in August, and while it was above the state’s rate of 7.6 percent that same month, it was an improvement over the city’s August 2013 rate of 11.5 percent.
Fitch said that the stable rating “is sensitive to shifts in fundamental credit characteristics including the city’s ability to manage increasing retiree benefit costs while maintaining adequate reserve levels. The stable outlook reflects Fitch’s expectation that such shifts are unlikely.”
“The city experienced surplus operations in fiscal 2012 and 2013, helping restore general fund reserves to more adequate levels. Projections for fiscal 2014 general and school fund results are also positive and significantly improve the city’s overall financial flexibility. … Fitch expects management will continue its prudent management of city and school finances in the long term now that liquidity and budget stability have been restored,” the report said.
The $3.6 billion tax base is 65 percent residential and 23 percent commercial/industrial; it experienced a 17 percent decline with the three-year revaluation effective Dec. 31, 2011. Management adjusted tax rates upward to remain revenue neutral, the report said.
Commercial expansions and restorations of formerly vacant properties over the last two years, along with other projects in the planning process, are expected by management to support future tax base growth, Fitch said.
Health care, manufacturing and retail provide the most jobs in the city.
Major employers include Memorial Hospital (1,500 employees) and toy manufacturer Hasbro (650).

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