Fitch Ratings upgrades Providence’s financial outlook, affirms ratings

PROVIDENCE – The city of Providence is holding steady financially, according to Fitch Ratings.

The agency has affirmed “A-” ratings for two of the city’s general obligation bonds and upgraded the municipality’s outlook to “positive,” citing five consecutive years of surpluses that have allowed the city to build the general fund to more than $25 million.

Fitch also affirmed its “issuer default rating” of “BBB” for Providence, which is the agency’s assessment of the city’s general capacity to fulfill its financial obligations.

According to Fitch, a BBB rating indicates that the municipality is at low risk of default but is more likely to be impaired by adverse economic conditions in comparison to a higher-rated entity.

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“Financial resilience has improved recently,” Fitch said in its ratings report. “Fitch believes continued slow and gradual improvement is possible post-pandemic, supported by tax base growth and improved budget practices.”

Mayor Jorge O. Elorza applauded Fitch’s conclusions on Tuesday.

“The city is very proud of the results of the recent rating review, which reflects our work to truly address the fiscal challenges facing our city,” Elorza said in a statement. “I am proud that Fitch has recognized the hard work of our team to make significant strides in improving the financial standing of our city.”

The Fitch report wasn’t all rosy.

In the agency’s credit profile of Providence, it called the city’s demographics “weak,” adding that there are “low wealth levels partially attributed to the large student population, and unemployment rates have historically exceeded state and national averages.”

The report also noted that the city budget was propped up somewhat by federal coronavirus relief funds. A $19.5 million loss in state revenue due to the pandemic was offset by the federal funds for public safety expenses, Fitch said.

And while the city’s fiscal 2022 budget increased by 6% compared with the previous year, city officials used about $19.5 million in American Rescue Plan Act money to balance the budget.

Still, Fitch said the future looks encouraging for Providence, which led the agency to boost the city’s financial outlook from “stable” to “positive.” It’s the city’s first “positive” outlook in more than eight years.

“Fitch expects management to continue recent efforts to manage expenses, including negotiating higher employee pension contributions, above natural revenue growth over time, although the city’s elevated long-term retiree costs are expected to remain a burden on the budget,” Fitch said in its report. “Maintenance of adequate financial resilience could lead to an upgrade.”

William Hamilton is PBN managing editor. He can be reached at hamilton@pbn.com.

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