Providence better positioned than Trenton to improve credit, says Moody’s
Providence is better positioned than Trenton to improve its credit quality, according to a Moody’s Investors Service commentary that compared the capitals of Rhode Island and New Jersey.
Moody’s rates both cities Baa1 with stable outlooks.
“Besides having the same rating, the two capitals are also one-time industrial powerhouses that have lost significant population, have high crime rates, and falling home values,” Moody’s said.
Providence, though, has experienced an economic recovery characterized by growth in the “eds and meds” sectors of higher education and health care, while Trenton's economy remains stagnant.
“Trenton's finances, however, are marked by far healthier reserves and stronger liquidity than Providence,” Moody’s said.
Both cities, Moody's said, are bucking five decades of negative crime, population and property value trends.
But since 2000, Providence's tax base has expanded close to 100% compared with Trenton’s 30% range. The “knock-on” effect from institutions such as Brown University, Johnson & Wales University, Rhode Island School of Design, Providence College and several large hospitals bolstered Providence.
Trenton, by contrast, has but one university in city limits, with numerous others, including Ivy League Princeton University about 10 miles away, just outside it.
While the cities share similar revenue streams, Trenton has a healthier financial profile, said Moody’s. Both cities depend heavily on state aid and share revenue-raising limitations, notably property tax caps and a large amount of tax-exempt property.
Partly due to tax-cap differences, Trenton has built its reserves despite economic distress, while Providence has traditionally failed to convert its economic success into healthier finances.
“Neither city has a solution for extremely high long-term liabilities, whether debt, retiree healthcare and/or pension liabilities,” said Moody’s. Barring major overhaul and without material funding increases, these liabilities will continue to burden their respective credit profiles.
Providence has built a strong economy beyond the government sector, while Trenton has yet to establish a post-industrial identity, according to Moody’s.
“Assuming Providence can use its dynamic economy to continue solidifying its finances, the city has stronger growth prospects than Trenton, which needs to rebuild its economy but has no obvious starting point.”
In both cases, said Moody’s, industrial glory is in the past. Since 1950, Trenton's population has plummeted 33.6% and remained stagnant for years. The population of Providence dropped 27.5% between 1950 and 2000. It has since risen but at a stagnant rate.