Moody’s Investors Service on Tuesday changed its outlook on Woonsocket, R.I. to negative while confirming its B2 general obligation bond rating.

Concurrently, Moody’s also affirmed the B2 underlying rating on the Rhode Island Education Building Corp. Series 2009 E bond issue, for which the city is the sole obligor.

Moody’s in May dropped Woonsocket’s GO rating three levels to B2 from Ba2, while keeping it under review for downgrade. Moody’s in January had dropped the rating from Ba1. Fitch Ratings in March lowered its rating to BB-minus from BBB-minus.

The ratings agency had placed 44,000-population Woonsocket, just south of the Rhode Island-Massachusetts border and home to CVS Caremark Corp., on review for downgrade on May 24, citing the deterioration of its school finances and “severely weakened” liquidity.

A message was left with Mayor Leo Fontaine seeking comment.

Although Woonsocket resolved its liquidity crisis when a state-appointed budget oversight commission advanced state aid, allowing the city to pay debt service  on time, structural imbalance in school operations continues to stress the city, Moody’s said.

The budget panel is the second of three levels of state oversight under Rhode Island’s three-tiered system.

The B2 rating also reflects pension underfunding, high debt, a moderate tax base and low wealth levels, the rating agency said.

“The negative outlook reflects the challenges that the city faces in renegotiating with its collective bargaining units to make substantial operating expenditure cuts while simultaneously raising revenues to eliminate the fiscal 2013 budget gap and obtain structural balance,” Moody’s said.

Improved liquidity and less reliance on cash-flow borrowing could improve Woonsocket’s rating, while ongoing imbalance in general fund or school operations, failure to close the fiscal 2013 budget gap, the inability to place cash-flow notes and a decline in pension funding status could push the rating down.

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