The rating outlook for Providence, R.I. was lowered Friday, when S&P Global Ratings revised it to stable from positive.
S&P cited recent declines in reserves. It affirmed the BBB rating on the city's general obligation debt, two notches above junk.
"While the budgetary and management environment has improved, it remains tenuous and vulnerable to adverse business or economic conditions," said analyst Victor Medeiros. He said S&P still expects the city's budgetary performance will remain "at least adequate" heading into fiscal 2017.
In his budget address to the City Council last month, Mayor Jorge Elorza warned that the city's structural deficit could spiral to $37 million by fiscal 2026.
"While we're not facing imminent insolvency, if we do not resolve ourselves to tackle our long term challenges head on, with long term [and] sustainable solutions, Providence risks dying a slow and painful death," he said.
S&P also revised the outlook to stable from positive on city-supported lease revenue debt of the Providence Public Building Authority, Providence Redevelopment Agency and Rhode Island Health & Educational Building Corp., while affirming the BBB-minus ratings on their bonds.
In addition, S&P revised its outlook to stable from positive on Providence moral obligation debt, including the series 2005E-2005G special obligation tax-increment refunding bonds--and the redevelopment agency's certificates of participation, issued for the Port of Providence. It affirmed its speculative-grade BB long-term rating on the debt.
The 2005 bonds are first payable by a lien on and pledge of net tax-increment revenues generated within a tax-increment financing district, which consists of the Manchester Street Station power plant, owned by a subsidiary of Dominion Resources. The city provides additional security through the moral obligation.
