Fitch Ratings on Wednesday lowered the general obligation bond rating of Providence, R.I., three notches to BBB from A with a negative outlook, affecting $44.5 million of debt.
The rating agency cited a weakened condition, short- and long-term budget gaps, low levels of liquidity, and high future retiree costs.
“Providence continues to experience financial pressure,” Fitch said in a report. “Liquidity remains a concern.”
Mayor Angel Taveras has warned that Providence, Rhode Island’s capital city with a population of 178,000, could run out of money in June.
“Fitch’s report is confirmation that Providence’s fiscal crisis is real,” Taveras said.
After passing a fiscal 2012 budget that eliminated a $110 million structural deficit, certain budget items have not materialized, leaving Providence with an estimated $22 million budget gap, which is 3.6% of the general and school fund budget.
A court injunction prohibited the city from discontinuing health insurance payments for retirees aged 65 and older. Providence, which is looking to save $8 million, wanted to move to coverage under the federal Medicare program.
Additionally, while the city budget included an increase in anticipated payments in lieu of taxes, or PILOTs, of $7.1 million, only Johnson & Wales University has agreed to increase the payments, from $643,000 to $1 million. Providence still hopes to get more PILOTs from Brown University and three local hospitals.
Elsewhere in Rhode Island, the state-appointed receiver overseeing the finances of bankrupt Central Falls is forming a charter review commission that could lead to the elimination of an elected mayor in favor of an appointed city manager.
Robert Flanders, the receiver, signed an order this week creating the nine-person panel of volunteers, Gov. Lincoln Chafee said Tuesday.
The commission will propose amendments to the city charter and making recommendations for ballot questions on a November referendum. Recommendations could include changes in the organizational structure of city government.
Flanders, a retired state Supreme Court justice, stripped Mayor Charles Moreau and the City Council of their powers shortly after his appointment, essentially reducing their roles to receivers.