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