PROVIDENCE – Fitch Ratings has assigned an AA rating to Rhode Island’s general obligation bonds. The rating outlook is stable.
Fitch noted Rhode Island’s conservative fiscal management but added that this positive aspect is offset by the state’s below-average economic growth.
Additionally, the state’s Issuer Default Rating was set at AA; state certificates of participation were rated AA; the Convention Center Authority revenue bonds were rated AA-; and the R.I. Commerce Corp.’s historic structures tax credit financing program was rated AA.
According to a news release, the state’s Issuer Default Rating and general obligation bond rating are driven by a balance of prudent fiscal management and a moderate long-term liability position, but a below-average economic growth for a state. The state’s particularly deep recession and slow recovery affected Fitch Ratings’ assessment of its modest economic and revenue growth over the long term.
Positive aspects of the state’s fiscal profile include maintenance of its rainy day fund at the statutory requirement of 5% of revenues, budgets that spend only 97% of forecast revenue and significant spending control.
For fiscal 2019, the state ended with a modest general revenue budget surplus of approximately $29 million, according to the state controller’s preliminary closing statement of August 2019. This was narrower than the $61 million and $52 million surpluses in fiscal years 2017 and 2018, respectively. General revenues were up 3% from fiscal 2018. Personal income tax revenues grew approximately 4%.
Sales and use taxes increased 6%, possibly because of the U.S. Supreme Court’s June 2018 Wayfair decision expanding the ability of states to directly levy sales taxes on remote sellers. The state took advantage of this decision by enacting legislation in June 2018, effective July 1, 2019. The state’s reserve fund at $203.7 million remains fully funded.
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 going forward.
The state maintains ample expenditure flexibility with low carrying costs and the broad expense-cutting ability common to most U.S. states, Fitch reported. Medicaid remains a key expense driver and a focus of expenditure-control efforts.
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. The state has long had a relatively high concentration of colleges and universities and slightly above-average educational attainment levels that indicate the potential for more robust growth, but that potential has not been realized to date, Fitch said.
Mary Lhowe is a PBN contributing writer.
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