Providence bonds downgraded as city works to repair finances
Providence was downgraded by Standard & Poor’s on Tuesday, even as it seeks to repair its finances by overhauling an ailing pension system and extracting bigger voluntary payments from Brown University, according to Bloomberg News.
S&P lowered Providence’s credit rating to BBB, two steps from junk-bond status, from BBB+, citing the “ongoing fiscal pressure affecting the city,” and said the outlook is negative, meaning it could be cut further. The announcement follows recent steps by Mayor Angel Taveras and the city council to suspend cost-of-living pension increases for retirees and extract more cash from nonprofits.
“Though city management has taken numerous steps to enhance revenue and drastically cut or avoid expenditures in an attempt to restore structural balance, the city’s budget remains structurally imbalanced,” said Matthew Stephan, an S&P analyst, in a May 1 report. He said Providence’s rating could be lowered again if S&P believes the city will file for bankruptcy.
Rhode Island and its municipalities have struggled after the recession as the cost of benefits promised to public workers consumes an ever-growing proportion of their annual budgets. Central Falls, Rhode Island’s smallest city, entered bankruptcy in August while the state took fiscal control of East Providence in November following persistent deficits. Taveras, elected Providence mayor in 2010, said in February the state’s most-populous municipality was on the brink of insolvency.
Providence’s city council on Monday passed a measure that overhauls the $422.8 million pension system, cutting costs by almost $19 million a year largely by suspending cost-of-living increases that are as high as 6 percent for some retired public safety workers. While Taveras signed it into law, Paul Doughty, who leads the local firefighters union, called the measure “a huge mistake” that will be challenged in court.
A day later, Brown, the Ivy League school founded in 1764, said it will almost double the amount of payments in lieu of taxes it has been making to city since 2003, agreeing to contribute $31.5 million over 11 years.
The university was the third nonprofit based in the city to agree in recent months to either begin making voluntary payments or increase the amount, according to the mayor’s office.