PROVIDENCE – Fitch Ratings has affirmed the city of Providence’s “A-” rating on its outstanding general obligation bonds and affirmed a “BBB” rating for the city’s issuer default rating, or IDR, which reflects the city’s unsecured general credit quality on Thursday.
Fitch Ratings noted the city has a high level of independent revenue-raising ability but still has a limited expenditure flexibility around retiree benefit costs and an “elevated but still moderate long-term liability burden.”
The report also noted the city has improved its financial resiliency but in a limited fashion, which leads the ratings agency to expect gradual improvement for the city, given a growth in the city’s tax base and the continuation of improvement for its budget practices.
The rating agency’s “A-” for the city’s general obligation bonds was said to reflect the statutory lien security given to such bonds in Rhode Island, which would give “enhanced recovery considerations” to bond holders.
The health care, higher education and government sectors were credited with the stability of the city’s economy.
The ratings also included a graded breakdown of the city’s finances.
The city’s revenue framework was given an “A” rating for a growth in tax revenues and a “high amount of tax revenue-raising flexibility.”
The city’s expenditure framework was given a “BBB” rating, dragged down by employee medical, salary and pension costs.
Providence’s long-term liability burden was rated “A,” noting that elevated pension liability is offset by low debt levels net of expected state reimbursement. It also noted that while liabilities will remain elevated for some time, they are not expected to materially change.
The Creative Capital’s operating performance was rated “BBB,” reflecting a period of strained fiscal operations before fiscal 2016. Fitch Ratings said operating performance increased in fiscal 2017, as well as in projections for fiscal 2018. The city’s financial reliance was described as weak but was expected to improve due to budget stabilization measures and more conservative budget assumptions.
“This is good news for Providence. Fitch has recognized that we have worked diligently to stabilize our finances,” said Mayor Jorge O. Elorza in a statement. “Maintaining our current rating is important as we continue to see the results of our work. Both our ratings affirmation and our expected operating surplus show that we are on the right path here in Rhode Island’s capital.”
Elorza also noted the city was projecting a year-end surplus of $9.1 million.
Chris Bergenheim is the PBN web editor. Email him at Bergenheim@PBN.com.
