PROVIDENCE – Fitch Ratings has upgraded the city’s outstanding General Obligation bonds to A- from BBB-, and its Issuer Default Rating to BBB from BBB-.
It also has assigned the city a stable outlook.
“I am excited to see that Fitch has recognized our efforts and has upgraded our credit rating,” Mayor Jorge O. Elorza said in a statement. “We have a lot more work to do, but combined with our recent announcement of a large operating surplus, this is another positive sign that the city’s finances are moving in the right direction.”
Fitch noted the fiscal 2016 combined surplus of nearly $9.5 million, including the $4.3 million budgeted surplus to reduce the cumulative deficit and the $5.1 million additional operating surplus announced earlier this week.
Fitch said the upgrade of the IDR to BBB “reflects a combination of the city’s progress in reducing its negative fund balance position and budget stabilization efforts. … Financial flexibility remains limited, but Fitch expects a slow and gradual improvement supported by tax base growth and improved budget practices.”
The report also notes that the rating is “sensitive to the city’s ability to continue to address any budget imbalances, restore reserves to more adequate levels, and maintain an adequate level of financial flexibility.”
Fitch cites elevated unfunded pension liabilities and OPEB liabilities as high, but that “overall debt levels of $262 million, net of state reimbursement for projects, are low (4 percent of personal income) and are not expected to materially change due to manageable plans for future debt and a rapid principal amortization.”
Meanwhile, City Council’s internal auditor discovered that the administration has overestimated its savings in proposed personnel changes at the Fire Department by $7 million.
In a memorandum addressed to City Council Finance Chairman John Igliozzi, internal auditor Matt Clarkin said that based upon “the proposed personnel changes associated with the reduction of the minimum manning requirement to 88 from 94 per shift, the decommissioning of three pieces of apparatus, and the addition of 12 battalion chiefs, it is projected that these changes will result in a net savings of approximately $9.1 million. … The administration projected in its fiscal note that the change to minimum manning clause would result in savings of approximately $16 million during the [five year] period of the [tentative agreement].”