Fitch Ratings has affirmed the ‘BBB’ rating on the town of West Warwick’s approximately $25.4 million outstanding general obligation bonds and concurrently revised the rating outlook to stable from positive.
The ‘BBB’ rating reflects West Warwick’s improved financial operations since the mid-1990s, slow but gradual tax base growth within its limited economy, and moderate debt levels relative to the town’s resources, Fitch said in a release. West Warwick has maintained consistently adequate reserve levels and addressed an accounting error regarding a reserve for its sewer fund held over from the early 1990s.
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The rating outlook revision to stable from positive reflects Fitch’s concerns about the uncertainties over the town’s contingent liability associated with ongoing litigations regarding The Station nightclub fire in February 2003.
West Warwick’s financial performance has improved from a legacy of unrealistic budget estimates and dependence on short-term borrowings, Fitch said. Following the corrective accounting treatment in fiscal 2002 of transferring a sewer fund reserve inadvertently categorized as a liability to the general fund balance, the unreserved and undesignated general fund balance stood at 6.9 percent of total expenditures and other uses at the close of fiscal 2003.
A small general fund deficit of $400,000 is estimated for fiscal 2004, down from the $2.7 million originally budgeted due to strong housing permit revenues and better collection rates. In light of level state aid for schools, the budget for fiscal 2005 contemplates an appropriated fund balance use of $2 million.
The town is involved in ongoing litigations relating to The Station fire. The decision by a federal district court to certify the matter as a class action is yet to be made, and the timing is currently indeterminable. Although the town reportedly maintains approximately $4 million of liability coverage over the incident, Fitch is concerned with the uninsured exposure faced by the town and any contingent liability that may arise from future legal judgment or settlement. Fitch will continue to monitor the situation and may take further rating actions as circumstances warrant.
Located 11 miles south of Providence, West Warwick is a small residential and industrial community whose population grew 2.5 percent during the 1990s to an estimated 29,996 in 2003. Once dominated by large textile manufacturers, the local economy has exhibited some diversification and now includes manufacturers of soap, medical supplies, and hot water heater systems as its top employers. Unemployment rates have traditionally been above those of the county, state, and the nation. Income levels are below those of the county and state but on par with the national average.
