PROVIDENCE – Standard and Poor’s Global Ratings raised its rating on the general obligation debt for Cumberland from AA/stable to an AA+/Stable and upgraded Providence’s GO debt from a BBB/stable to a BBB/positive this week.
“The positive outlook assigned by S&P is a clear indication we are heading in the right direction,” said Providence Mayor Jorge O. Elorza. “My administration has been focused on eliminating the city’s deficit, realistic budgeting and finding efficiency in every city department. Our results in FY2016 and FY2017 have lifted the city out of its deficit position and will finally allow us to create a rainy day fund. We will continue to focus on improved budgeting as we increase investments in Providence’s future.”
Moody’s Investor Service also affirmed Providence’s Baa1 GO (for the city at large) and Baa2 lease ratings (for the R.I. Health and Educational Building Corp. bonds, the Providence Public Building Authority bonds, and the Providence Redevelopment Agency bonds). Both ratings retained a negative outlook.
Providence:
S&P upgraded the city of Providence’s outlook in its credit rating from stable to positive.
Both current and long-term ratings remained BBB and received S&P upgraded outlooks.
S&P also had a lower rating for the PPBA, RIBHEC and RDA bonds with a BBB- rating, though it revised the outlook to positive.
The S&P outlook revisions were based on “the city’s improved budgetary performance,” which S&P attributed to a growth in taxable valuations, administrative changes and stronger operational controls.
The rating did, however, take into account that the city had “past fiscal imbalances, limited budgetary flexibility due to fixed costs and some historic economic volatility.”
S&P estimates the city is expected to retain a positive credit rating outlook over the next two years, with a one-in-three chance its credit could be upgraded in that period. Providence was noted to have an adequate economy, a weak management environment, a weak debt and contingent liability position, very weak budgetary flexibility, an adequate budgetary performance and very strong liquidity.
S&P did note that Providence, despite having a weak management environment, had good financial policies and practices.
Moody’s outlook was a bit more pessimistic, but overlapped in concerns and praise. Moody’s cited the city’s sizeable tax base as a stabilizing presence, as well as the city’s healthy development pipeline, and the city’s close proximity to the Boston metro region among its credit strengths.
Moody’s cited the unfunded pension liability, the high fixed costs which limit budget flexibility, narrow financial reserves and “weak resident wealth and income” as the city’s credit challenges.
The report noted that the growing pension costs hamper the city’s rating, but the rating is buoyed by the development pipeline, which it notes will be lessened by tax incentives, but in time will create a healthy tax base.
The report also notes that the poverty rate (29 percent) is exaggerated by the high student population of the city.
Cumberland:
S&P said that Cumberland’s economy was “very strong,” as well as citing the municipality’s management, and financial policies and practices.
“I am proud of what we have accomplished,” said Mayor William Murray. “Cumberland had an ‘A’ rating from S&P in mid-2014 and we have improved that rating four steps to AA+ over the past four years.”
The ratings agency said that Cumberland’s budgetary performance was adequate for fiscal 2016. With a minor operating deficit at the total governmental fund level, however, S&P did say that the town had a strong budgetary flexibility. The ratings agency said the town had strong liquidity, a very strong debt and contingent liability position, and had earned a strong institutional frameworks score.
Cumberland’s long-term rating was also upgraded to a AA+/Stable.
“This equates to lower interest costs in future bond issues, which is good for the taxpayers,” said Murray.
Chris Bergenheim is the PBN web editor.
