NEW YORK - Moody’s Investors Service has revised the outlook on Rhode Island to negative from stable and affirmed the Aa2 rating on the state’s general obligation bonds, the agency said.
Concurrently, Moody’s affirmed the Aa3 rating on the state’s appropriation debt and certificates of participation. The state has roughly $1.1 billion in outstanding general obligation debt and $640 million in outstanding appropriation debt and certificates of participation.
Moody’s said late Tuesday afternoon that the Aa2 GO rating reflects Rhode Island’s maintenance of modest but positive general fund balances, including a fully funded budget reserve fund, narrow liquidity and an economy that has long lagged the nation’s.
Rhode Island’s financially troubled Central Falls has been under receivership since May 2010.
“Providence and several other communities are facing fiscal challenges as well,” Senate Finance Committee Chairman Daniel DaPonte, D-East Providence, said in a phone interview with The Bond Buyer on Tuesday.
Credit strengths, according to Moody’s, include maintaining the budget reserve fund at a constitutional cap; and wide legal powers — similar to other state governments — to raise revenue.
Challenges include consecutive budget gaps for fiscal years 2007 through 2011, and forecast for fiscal 2012, due to revenue underperformance and continuing spending pressures; past reliance on stop-gap measures that contributes to recurring budget shortfalls; and consecutive years of cash flow borrowing and slim cash margins underscore the state’s slim liquidity.
“Rhode Island’s fiscal condition has improved since last year,” Moody’s said, pointing out that the fiscal 2010 budget had closed a gap measuring 18% of general fund revenues.
“While the gap relative to resources has declined, the state’s past choices to employ one-time budget solutions have caused gaps to recur. As in many states, Rhode Island relied heavily on the federal stimulus funds to bridge the gap between revenues and expenditures in fiscal years 2009 and 2010, and continued that practice in fiscal 2011,” Moody’s said.
