Standard & Poor’s last week downgraded Providence to BBB-plus from A as it faces structural deficits and weakened finances.

The outlook is negative. Providence has $88.2 million of outstanding general obligation debt, according to Moody’s Investors Service.

Standard & Poor’s dropped its rating on lease revenue bonds sold through conduit issuers and supported by the city to BBB from A-minus. It also dropped Providence’s moral obligation credit to a junk-level BB-plus from BBB.

City officials are working on closing a $70 million structural deficit for the current fiscal year, which ends June 30. To help fill the gap, Providence plans to lease back some of its assets with a $35 million Providence Public Building Authority lease revenue bond deal.

The city projects a $110 million budget deficit for fiscal 2012, according to Fitch Ratings. Standard & Poor’s could lower the rating further if the city fails to restore structural balance and its general fund continues to deteriorate.

“The rating may also be lowered if the city becomes significantly cash-constrained, particularly if the sale of these lease revenue bonds proves unsuccessful,” Standard & Poor’s Matthew Stephan wrote. “If, on the other hand, expenditure cuts, revenue stability, and good management policies allow the city’s finances to stabilize and then improve, we could revise the outlook to stable.”

Fitch on March 18 dropped Providence to A from AA-minus and Moody’s on March 16 lowered it to A3 from A1, both with negative outlooks.

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