NEW YORK – Providence’s general-obligation debt rating was cut two levels by Standard & Poor’s to BBB+, its third-lowest investment grade.
The downgrade reflects high unemployment, an $828 million unfunded pension liability and “significant structural deficits” for 2011 and 2012, S&P said on Wednesday in a report. The company has a negative outlook on the city’s debt.
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“If structural balance is not restored and the city’s general fund position continues to deteriorate, the rating could be lowered,” wrote Matthew Stephan, a credit analyst.
Providence has a weakened financial position and relies on “deficit borrowing to meet expenditure needs,” Moody’s Investors Service said March 16, when it cut the city’s credit rating two steps to A3, its fourth-lowest investment grade.
The city ran budget deficits in the past two cycles and faces a $28 million gap for the fiscal year ending in June, Moody’s said. Providence already has borrowed $41 million to help ease the 2011 imbalance, according to Moody’s. Mayor Angel Taveras may face a deficit of $110 million, or 17.5 percent of spending on operations, in the year that starts July 1, the company said.
Jobless Rate
Unemployment in the city of almost 172,000 remained high at 13 percent in December, Moody’s said. By comparison, the state’s jobless level was 11.5 percent that month, while the national rate was 9.4 percent, according to data compiled by Bloomberg. The city’s large governmental, health-care and educational employers keep it an economic center, the analysts said.
On March 18, Fitch Ratings cut some of the city’s general-obligation bonds two levels to A, the fifth-lowest investment grade. The cut reflected low wealth levels, high unemployment and declining assessed values, Fitch said in a report.
“The Taveras administration will do whatever is necessary to stabilize Providence’s finances, improve the city’s operating reserves, and make full annual required contributions to the city’s retirement system,” David Ortiz, the mayor’s spokesman, said in an e-mailed statement. “Such actions will put Providence in position to restore its rating.”
