"We are moving in the right direction," Rhode Island Gov. Lincoln Chafee said after Moody's revised its outlook on the state to stable from negative.

Gov. Lincoln Chafee embraced the news that Moody's Investors Service revised its outlook on Rhode Island to stable from negative.

"We are moving in the right direction through investments in education, infrastructure and workforce development," Chafee said in a statement late Monday after Moody's announced the revision while affirming its Aa2 general obligation bond rating.

The move, which affects $2.2 billion in net tax-supported debt outstanding, comes ahead of the state's mid-October sale of about $208 million of consolidated capital development bonds. About $162 million of that amount is a refunding.

"The change in outlook to stable from negative reflects the state's success in shoring up its finances through the maintenance of adequate available reserves and improved liquidity," said Moody's, which also cited the reduced risk of pension overhaul reversal, the lessening of negative demographic and economic trends, and less risk of economic intrusion from Massachusetts gaming.

Rhode Island has the nation's highest unemployment rate at 7.7% as of August, according to federal Bureau of Labor statistics.

"In Rhode Island, we have been constantly underperforming for a number of quarters," said Gary Sasse, the founding director at the Hassenfeld Institute for Public Leadership at Bryant University and a former director of the state administration and finance departments. "The economic problems have been affecting families very directly."

According to Chafee, the unemployment rate has dropped from 11.4% when he took office, and is down 1.9 percentage points since August 2013. He added that the year-over-year decline in unemployment was well above the drop in the United States and best among the six New England states.

Chafee is not running for re-election next month.

State General Treasurer Gina Raimondo, a Democrat, will face Republican and Cranston Mayor Allan Fung for the office in November, with pensions and the state economy weighing heavily during the campaign.

Rhode Island has been grappling with a controversial state employee pension overhaul - now before the Rhode Island courts -- as well as the 38 Studios moral obligation bond financing fiasco that has left taxpayers on the hook for $75 million in principal.

The 2011 pension overhaul created a hybrid defined benefit-defined contribution system, suspended automatic cost-of-living increases and tweaked eligibility requirements.

A compromise offer state officials announced in February involved tweaking the formula for cost-of-living adjustments and employee eligibility, and aimed at saving Rhode Island millions of dollars in legal fees and preserving 95% of the anticipated $4 billion in savings for the state and $1 billion for municipalities.

The state and five public-sector unions could begin a trial this fall.

"Unless the parties come to agreement, the judicial process is likely to be drawn out and subject to appeal, pushing the prospects for a resolution into 2016 if not later, likely beyond our outlook horizon," said Moody's, which defined the horizon as 18 months to two years.

Raimondo ran point on the state pension bill, while Fung negotiated a compromise to Warwick's pension plan. Under the agreement, Cranston stands to contribute $6 million less to the police and fire pension plan than otherwise in fiscal 2014. It combines caps freezes and reduces cost-of-living increases, or COLAs, over 30 years and reamortizes its $300 million unfunded liability.

The 38 Studios controversy has generated national headlines. Rhode Island taxpayers were left on the hook for $75 million in moral obligation bonds the Rhode Island Economic Development Corp. issued and backed to finance the move to Rhode Island of 38 Studios, a video-game company owned by ESPN commentator and former Boston Red Sox pitcher Curt Schilling.

The company filed for Chapter 7 bankruptcy two years ago.

Rhode Island's legislature the past two years approved partial payments of 38 Studios debt after heated debate, amid threats of downgrades from the three major bond-rating agencies, who have essentially said that moral-obligation debt is tantamount to a GO.

Moody's also affirmed the ratings on roughly $1.7 billion of notched lease appropriation, certificates of participation, and moral obligation bonds, as well as Rhode Island Health and Educational Building Corp. intercept programs.

Fitch Ratings and Standard & Poor's rate Rhode Island's GO debt AA.

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