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Taveras cites Fitch downgrade of Providence’s bonds in underscoring urgency of fiscal crisis

March 14, 2012

The Fitch bond-rating agency today downgraded five different series of Providence’s bonds from “A” to “BBB” and called the rating outlook “negative”:

The  three-notch  downgrade  and  Negative Outlook  are  a  result  of  the  continued decline in the city’s financial flexibility  over  the last 12 months, leaving the city in a weak liquidity position.  This  risk  is  compounded  by  Fitch’s concern about the city’s ability to address future-year structural deficits.

NEAR-  AND  LONG-TERM  BUDGET  GAPS:  Fitch  has  concerns about the city’s ability  to  generate  adequate  cash  flow  to  fully support current-year operations  and  the  medium-term  challenge of successfully closing futurefiscal  years’  large  structural budget gaps. Challenges include statutoryrevenue  limitations,  a shortage of additional cost-cutting solutions, and the  city’s  ability  to  alter  commitments  related to retirees’ benefits payments.

LOW  LEVELS  OF LIQUIDITY: Cash reserves have essentially been depleted and restoration  of  an adequate cushion seems to rely on the ability to borrow against  fiscal  2013  resources.  Based  on  discussions  with management, additional expenditure cuts are somewhat exhausted.

On the plus side, Fitch cited a “strong management team” that was “effective  in  eliminating  a significant  portion  of  its  structural  deficit  for  fiscal  2012,  and management continues to seek budget-balancing options.”

Mayor Angel Taveras offered this statement:

Fitch’s report is confirmation that Providence’s fiscal crisis is real.  We must reform our pension system, and our large tax-exempt institutions must do more to help the city and rebuild a strong fiscal foundation.

As Fitch recognizes, we have made difficult decisions to lower the city’s $110 million structural deficit to $22 million. We will continue to make the difficult and necessary decisions to make sure that Rhode Island’s capital city is fiscally sound.  We recognize just how important Providence is to the rest of Rhode Island and are committed to making sure Providence is successful.

One Comment leave one →
  1. Mister Guy permalink
    March 15, 2012 12:37 am

    This downgrade could have just as much to do with Taveras needlessly talking up the prospects of bankruptcy as compared to the actual fiscal position of the City. Once again, needlessly making one’s creditors nervous does nothing good for one’s future economic prosperity.

    “Challenges include statutory revenue limitations”

    …which need to be changed at the state level. Hamstringing the ability of localities to raise taxes is yet another past “quick fix” that’s failed.

    “Based on discussions with management, additional expenditure cuts are somewhat exhausted”

    …which, of course, isn’t true, but this is again an example of the Taveras Administration not thinking hard enough about what can & should be cut in the City’s budget.

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