Providence, R.I.'s agreement with police unions for benefit reductions for current and future retirees is a credit positive for the city, according to Moody's Investors Service.
The agreement, which 89% of police union members approved on Dec. 13, follows a similar settlement with the firefighters union in November.
"It will provide immediate and long-term budgetary relief, reducing current and long-term costs arising from pension and other post-employment benefits," Moody's said in its weekly credit outlook, issued Thursday.
Moody's rates the city's general obligation bonds Baa1. Fitch Ratings and Standard & Poor's assign BBB ratings. All three have negative outlooks.
The agreement, which ended seven months of negotiations, contains year-over-year reductions of about 25% in pension benefit costs and 13% in healthcare benefit costs, less severe than the cuts in Central Falls, where benefits were reduced up to 55% before that city exited bankruptcy protection.
Included in the Providence deal is a 10-year suspension of all pension cost-of-living adjustments and a permanent elimination of all high-end COLAs above 5%. After the 10-year period, employees' increases would max out at 3%. According to Moody's, the plan adjustments would save the city about $18.5 million in fiscal 2013, or about 3% of the city's $638 million budget.
It would also cut Providence's unfunded pension liability by roughly $170 million, or 19.2%.
"We expect it to set a precedent that other struggling Rhode Island cities and towns can follow; a significant number of local governments in Rhode Island continue to face sizable pension and other post-employment benefit liabilities, and the ability to alter existing benefits is an effective tool to manage the rapidly growing expenditures," Moody's said.
Meanwhile, a challenge to the landmark 2011 Rhode Island law overhauling pension benefits for state employees is headed to mediation.
On Tuesday, Rhode Island Superior Court Judge Sarah Taft-Carter ordered the Federal Mediation and Conciliation Service to oversee talks between the state and five unions challenging the law.
Also earlier in the week, Providence Mayor Angel Taveras announced an agreement in which Providence College will contribute $3.84 million to the capital city over 10 years.
According to the mayor, his administration has secured contributions from all seven major tax-exempt institutions in Providence, including Ivy League Brown University, totaling nearly $48 million in additional revenue over 11 years.