Central Falls, R.I., received more bad news: The 2012 budget plan approved by the state House Finance Committee eliminated $6.7 million in aid to the struggling community.
Rhode Island Gov. Lincoln Chafee had proposed $1.8 million in the current budget year, which ends June 30, and a further $4.9 million for the new budget year.
Overall, the panel passed a $7.7 billion plan last Friday that will go to the full House for approval. The chamber is scheduled to debate it next Friday.
Earlier on Friday, Moody’s Investors Service downgraded the city’s general obligation rating one level to Caa1 from B3, affecting about $20.8 million of outstanding debt.
The rating agency warned about a “heightened potential” for a default this summer and greater risk that Central Falls cannot stabilize its pension plan without filing for Chapter 9 bankruptcy.
Moody’s said its latest action did not hinge on the availability of state aid.
Rep. Agostinho Silva, a House Finance Committee member from Central Falls, said he would talk with legislative leaders in an attempt to restore some of the funds. The city has been under receivership since May 2010. Former state Supreme Court Justice Robert Flanders Jr. is the receiver.
The state has funded Central Falls’ school system since 1990.
The budget approved Friday alters Chafee’s sales tax proposal. The governor wanted to lower the sales tax to 6% from 7%, while broadening the taxable category to such items as dry cleaning, haircuts, and auto repairs.
The budget before the House keeps the sales tax at 7%, but makes taxable items including sightseeing package tours, computer software downloaded digitally, and over-the-counter drugs.
The lawmakers, envisioning savings in future years, also eliminated new longevity bonuses for state employees, except as contracted now.
In addition, the House budget places a three-year moratorium on state construction assistance to communities and school districts for building libraries and schools.
Rhode Island is rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch Ratings.
Chafee and General Treasurer Gina Raimondo, meanwhile, have announced a so-called partnership to get a grasp on problems with the state pension system. Raimondo said in a report last month that the annual cost of the pension fund could skyrocket to $1 billion by fiscal 2022.
They have formed a 12-member advisory group to help them craft a proposal for a special session of the General Assembly in October.
The panel includes Almonte Group LLC chief executive officer and former state auditor general Ernest Almonte, Cranston Mayor Allan Fung, and Amica Mutual Insurance chief executive Robert DiMuccio.
