R.I. earns high marks on bonds,
credit risk from Fitch Ratings

FITCH RATINGS recently gave Rhode Island state bonds high investment grade ratings, with overall positive comments about the financial situation of state government. / BLOOMBERG NEWS FILE PHOTO/SCOTT EELLS

PROVIDENCE – Rhode Island received high marks in a recent bond ratings report from New York-based Fitch Ratings, one of the big three investment ratings firms along with Moody’s and Standard & Poor’s.

Fitch gave high investment grade “AA” ratings to $148.6 million in state general obligation bonds and a “AA-minus” rating to nearly $77 million in revenue bonds from R.I. Commerce Corp., the quasi-public agency serving as the state’s economic development agency. Fitch also gave the state a “AA” issuer default rating, which measures credit risk.

The ratings, Fitch wrote, were based on the state’s “conservative and prudent fiscal management and a moderate long-term liability position, offset by below-average economic growth for a U.S. state. The state’s particularly deep recession and slow recovery inform Fitch’s assessment of Rhode Island’s modest economic and revenue growth prospects over the long term. The state continues to maintain its rainy-day fund at a statutory 5% of revenues, budgets to spend only 97% of forecast revenue and retains substantial spending control.”

The agency was a little cooler on Rhode Island’s overall economic prospects: “Rhode Island’s economy, weighted toward education and health services, has grown slower than national trends over time with a demographic profile weaker than that of most states. Fitch anticipates modest economic expansion. The state’s population has been relatively flat since the turn of the century, trailing national growth, and is also slightly older than the national median. A relatively high concentration of colleges and universities and slightly above-average educational attainment levels indicate the potential for more robust growth.”

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The agency also graded state government in several categories.

Revenue framework: “A,” or medium upper investment grade. “Fitch anticipates Rhode Island’s revenues will grow modestly on a nominal basis. The state has complete legal control over its revenues.”

Expenditure framework: “AA,” or high investment grade. “The state maintains ample expenditure flexibility with low carrying costs and the broad expense-cutting ability common to most U.S. states. Medicaid remains a key expense driver and a focus of expenditure-control efforts. Moderate growth prospects temper Fitch’s assessment of the natural pace of spending relative to expected revenue growth.”

Long-term liability burden: “AA.” “Rhode Island’s long-term liabilities are moderate but well above the median for U.S. states. Pension obligations exceed outstanding debt, although the growth trajectory moderated significantly following the substantial benefit changes enacted over the past decade.”

Operating performance: “AAA,” the highest investment rating. “Rhode Island has the highest gap-closing ability, wide-ranging budgetary management capabilities and a strong commitment to maintaining a prudent reserve. During the [economic] expansion, the state has enacted largely structurally balanced budgets and taken steps to improve financial flexibility.”

Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.

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