Providence, R.I., received yet another downgrade on Tuesday, but the distressed Rhode Island capital also had some good news to counter the bad.
While Standard & Poor’s lowered its long-term rating and underlying rating on Providence’s general obligation debt to BBB from BBB-plus, the city and Brown University announced a voluntary-payment agreement in which the Ivy League university will pay $31.5 million in lieu of taxes over 11 years.
Mayor Angel Taveras hopes the infusion from Brown will help the city avoid bankruptcy. Taveras, meanwhile, quickly signed a pension overhaul proposal the City Council passed on Monday night, though a court battle with unions is expected.
Standard & Poor’s cited the city’s “deteriorating fund balance and liquidity position, intractable pension liability growth and optimistic 2013 budget assumptions.”
In March, Fitch Ratings and Moody’s Investors Service dropped Providence three notches to BBB from A, and Moody’s downgraded it to Baa1 from A3.
Standard & Poor’s also lowered its long-term rating and underlying rating on lease revenue debt issued by the Providence Public Building Authority, the Providence Redevelopment Agency and the Rhode Island Health and Educational Building Corp., supported by the city, to BBB-minus from BBB, and debt secured by the moral obligation of the city, including the city’s Series 2005E, 2005F and 2005G special obligation tax-increment refunding bonds and the redevelopment agency’s certificates of participation, issued for the Port of Providence, to BB from BB-plus.
According to the rating agency, the outlook on all of the ratings remains negative.
“During the past four fiscal years, the city’s general fund balance and liquidity have deteriorated significantly, leading to diminished financial flexibility and cash flow,” said Standard & Poor’s analyst Matthew Stephan.
Providence also announced on Monday a $2.4 million deal with Brown affiliate Lifespan, in the first-ever voluntary payment agreement between the city and a hospital.
Brown now pays $4 million annually. Under the new agreement, it will pay an additional $3.9 million this fiscal year and the rest over the following 10. The city had sought more. Discussions between Taveras and outgoing Brown president Ruth Simmons at times were acrimonious. Gov. Lincoln Chafee helped broker the deal.
In February, Johnson & Wales University agreed to at least triple the school’s contribution to Providence’s coffers to nearly $1 million.
On Monday, the City Council, by a 12-to-0 vote, gave final approval to Taveras’ pension overhaul package, which he calls the Providence Pension Protection Plan, though a court challenge from at least one union is anticipated. An initial vote passed on Thursday, also without objections.
Should the changes materialize, Providence expects to reduce by $236 million its unfunded liability, which now stands at $901 million. The changes would freeze guaranteed cost-of-living raises until the plan is funded at 70%, and cap future pension benefits.
The Providence Fire Fighters-IAFF Local 799, however, has promised a court fight.