East Providence, R.I., officials are upset over Gov. Lincoln Chafee’s appointment of a five-member commission to oversee the city’s finances.

“At this point, I feel the state is working against us,” Mayor Bruce Rogers, fighting tears, said at a press conference. “And I plead to the people of East Providence and to our representatives and senators, not to let us go that route.”

The 49,000-population municipality — whose bond rating has dropped six notches this year to junk-status Ba1 from A1 — already was under an overseer, state police Major Stephen Bannon. Under a state law passed in 2010, the budget commission is the second of three state intervention steps. Bannon, no longer the overseer, will serve on the new panel.

Rogers and East Providence city manager Peter Graczykowski were also named to the panel, though their level of participation is uncertain at this point. Rogers said the city may sue the state.

Next would be receivership, the category of Central Falls. Receiver Robert Flanders placed 19,000-population Central Falls into Chapter 9 bankruptcy protection on Aug. 1.

Department of Revenue director Rosemary Booth Gallogly cited Bannon’s recommendation of a budget panel in a statement late Tuesday.

Bannon said the city has been unable to present a balanced budget and “faces a fiscal crisis that poses an imminent danger to the safety of the citizens of the city and-or their property.”

Chafee’s announcement estimated the school deficit at $7.2 million for fiscal 2011, while the city’s fiscal 2012 budget resulted in additional $7.2 million hole. According to Rogers, the City Council has narrowed that gap to $1.2 million.

After Moody’s latest three-level downgrade on Dec. 12 — the agency on Aug. 11 had lowered the rating to Baa1 — it said it had East Providence under review for yet another possible downgrade.

“Large and persistent accumulated deficits in the general and school operating funds and a growing dependence on tax anticipation notes instigated the state to implement Phase 1 of its oversight powers,” Moody’s said in a special report Monday on credit stress facing the state’s municipalities.

Moody’s on Dec. 12 also downgraded the Rhode Island Health and Education Building Corp.’s Series 2007C bond issue to Baa2 from A2, of which the city’s portion represents 8.4%.

Standard & Poor’s rates the city’s GO bonds BBB-plus with a negative outlook. 

“In our opinion, the city’s overall net debt burden remains low, at about 1% of market value and less than $1,000 per capita. The fiscal 2010 carrying charge is low, at 7% of operating expenditures. East Providence has no exposure to interest-rate swaps or variable-rate debt,” S&P said.

Chafee said the multinotch downgrade will make it more difficult to obtain the short-term financing it generally has relied upon to pay bills and meet municipal payrolls.

Gallogly said that after the most recent downgrade, the state had to help the city borrow $10 million in tax anticipation notes.

The city intends to borrow another $20 million in Tans, probably in January, according to officials.

A state auditor’s report in September said the pension plan for East Providence  firemen and police officers is “at risk,” funded at a 47.8% ratio. The report considered less than 60% to be significantly underfunded.

According to Moody’s, the city issued $32 million in fiscal 2011. Without the December borrowing, Moody’s said, the city was expected to run out of cash by mid-month.

Gallogly’s appointees to the commission also include former North Providence budget officer and House fiscal advisor Michael O’Keefe, and Diane Brennan of Seekonk, Mass., a Warwick financial report analyst.

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