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Moody’s calls Providence a key bellwether for RI communities

May 8, 2012

While offering kind words for Providence’s recently passed pension overhaul (“a credit positive”), Moody’s also calls the city a key indicator for other struggling Rhode Island communities:

Providence’s ordinance marks the first time that a Rhode Island local government has altered existing contractual agreements with retirees outside of Chapter 9 bankruptcy. If the ordinance survives a legal challenge, many other Rhode Island local governments may pass similar actions that reduce benefits to manage their own significant fiscal stress.

A large proportion of Rhode Island local governments are facing fiscal stress related to growing pension benefits. Unfunded pension liabilities, in combination with outstanding debt obligations, are high relative to property tax bases (see exhibit below). The ability to alter pension benefits outside of bankruptcy would be a significant tool for municipalities to balance financial operations. This could also reduce the growing need for state intervention, which has provided administrative and legislative support in the cases of Central Falls (Caa1 negative), Woonsocket (Ba2 review for downgrade) and East Providence (Ba1 negative) through a program for oversight of distressed municipalities authorized under the Fiscal Stability Act of 2010. Providence has not yet requested the state to formally step in under the program, although the state is closely involved with the city’s day-to-day operations and has accelerated state aid payments to improve the city’s cash flow.

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