While calling the $11.4 million general fund shortfall in Rhode Island’s capital city a credit negative, Moody’s Investors Service praised Providence officials for balancing its budget one year after it faced a gap of $110 million.
“The city’s financial position has weakened considerably over the past four years. However, its balanced budget for 2013 indicates some progress toward restoring fiscal stability,” Moody’s said in a commentary.
The city released an audit two weeks ago that showed a $15 million operating deficit for fiscal 2012, resulting in the negative general fund balance.
Moody’s rates the city’s general obligation bonds Baa1, while Fitch Ratings and Standard & Poor’s each assign BBB ratings.
Last February, Taveras warned in his state of the city address that Providence was on the edge of bankruptcy: “We are standing on the edge and staring into a black hole.”
But over the past year the city narrowed the gap by $95 million, negotiating pension and health care concessions from employees and retirees, renegotiating greater payments in lieu of taxes from nonprofit organizations, reducing education spending by $30 million and increasing property taxes by 8%. Moody’s called the December pension benefit-reduction agreement with police unions a credit positive.
“In the past two years, the Taveras administration and the city of Providence have secured a number of accomplishments,” Providence finance director Michael Pearis wrote in the city audit.
Moody’s said Providence’s 2012 deficit would have been deeper had it fully paid its annual pension contribution. The audit showed that Providence did not pay $5.4 million, or 10%, of its required contribution.
According to Moody’s, which cited the most recent actuarial valuation in June 2011, the city’s pension is only 32% funded, with its $903 million unfunded liability equating to 140% of operating revenues.
The rating agency also called the use of settlement money from online search engine Google to replenish pension funds a credit positive for North Providence and East Providence.
The communities deposited $20.6 million and $49.2 million, respectively, after the U.S. Department of Justice granted special permission for that use. Each received $60 million for participating in a federal investigation into illegal online prescription drug sales.