WARWICK – Moody’s Investors Service has cut its credit rating on Warwick’s general-obligation bonds by a notch, citing a shrinking reserve fund that is expected to get smaller at the end of fiscal year 2011.
Moody’s downgraded its rating on Warwick’s $151 million in general-obligation bonds from Aa2 to Aa3. The rating is three notches from Moody’s top Aaa rating (there are 20 levels to Moody’s ratings scale, 10 of investment grade and 10 of junk grade).
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The downgrade came because Warwick’s reserves are far below average, Moody’s said, noting that the city’s fiscal 2011 incorporated a $2.7 million appropriation from reserve fund, which had grown to $9.5 million, or 3.4 percent of revenue, in fiscal 2010.
Moody’s noted that the city had to endure a $1.7 million midyear cut in state aid in 2010 and absorbed a $12.6 million cut in the city’s motor vehicle excise tax reimbursement from the state this fiscal year.
“Additionally, a further $3 million decline in reserves is possible as tax abatement activity has exceeded budgeted amounts and tax collections trail projections,” Moody’s said. “At year-end the city’s unreserved operating fund balance is projected to be between 1.7 percent and 3 percent of revenues, significantly lower than the national median of 17 percent and the 8 percent Rhode Island median.”
Moody’s said it also has assigned a Aa3 rating to the city’s $16.7 million general obligation refunding bonds. The rating service also downgraded from Aa2 to Aa3 two bond issues from the R.I. Health and Education Building Corporation to finance public school construction. Warwick is a pool participant in each bond.
In March, Moody’s cut Providence’s bond rating from an A1 to an A3 rating, with a negative outlook. It also reduced Coventry’s rating one notch from Aa2 to Aa3 in March, citing “a lack of willingness” to fully fund its pension plans’ actuarially required contributions, or ARC.
