NEW YORK - Standard & Poor's Ratings Services said it has lowered its long-term rating and underlying rating (SPUR) on Providence, R.I.'s general obligation (GO) debt to BBB from BBB-plus based on its opinion of the city's deteriorating fund balance and liquidity position, intractable pension liability growth, and optimistic 2013 budget assumptions.
Standard & Poor's also lowered its long-term rating and SPUR on:
--Lease revenue debt issued by Providence Public Building Authority, Providence Redevelopment Agency, and Rhode Island Health and Educational Building Corp. supported by the city, to BBB-minus from BBB; and
--Debt secured by the moral obligation of the city, including the city's series 2005E, 2005F, and 2005G special obligation tax-increment refunding bonds and the redevelopment agency's certificates of participation, issued for the Port of Providence, to BB from BB-plus.
The outlook on all of the ratings remains negative, reflecting the ongoing fiscal pressure affecting the city.
"The negative outlook reflects our expectation that the rating could be lowered over the next two years due to the ongoing fiscal pressure affecting the city. During the past four fiscal years, the city's general fund balance and liquidity have deteriorated significantly, leading to diminished financial flexibility and cash flow. Though city management has taken numerous steps to enhance revenue and drastically cut or avoid expenditures in an attempt to restore structural balance, the city's budget remains structurally imbalanced, in our opinion. Some line-items in the 2013 budget are conjectural in nature, and it is uncertain at this time whether such savings will be realized and sufficient to close the budget gap," said Standard & Poor's credit analyst Matthew Stephan. "If structural balance is not restored over the next two fiscal years and the city's general fund position continues to deteriorate, we could lower the rating. We also may lower the rating if the city becomes further liquidity-constrained, evidenced by significant cash-flow borrowing or cash-flow concerns, or if we believe the city may file for bankruptcy, even if we believe other options to deal with fiscal stress may remain. 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."
