Rhode Island General Treasurer Seth Magaziner has released a debt affordability study that he called the largest ever by a state government.

“It was a very big undertaking but it was very worthwhile,” Magaziner said in an interview.

"It's what the bond-rating agencies emphasize in their own reports," said Rhode Island General Treasurer Seth Magaziner.

According to Magaziner, the 130-page report provides debt targets not only for a state, but for most governmental issuers within a state. It also bakes pension liabilities into affordability targets.

“It’s what the bond rating agencies emphasize in their own reports,” said Magaziner, who presented his findings to the Public Finance Management Board.

The study, Rhode Island’s first since 1999, reported that the state has $10.5 billion of public debt, excluding pensions.

The breakdown is $1.9 billion for state government; $6.6 billion for quasi-public agencies such as Rhode Island Commerce; and just over $2 billion for municipalities and local special districts.

Pension liability brings the overall debt total to $17 billion. More than 100 Rhode Island entities can issue public debt.

Magaziner said the state’s debt is manageable, though higher than the national median. “It’s not a cause for great concern,” he said of the state and the quasi-public agencies.

Most municipalities, he added, are within affordability ranges.

“A handful of outliers are cause for concern. In all of them, the primary driver is pension liability, not traditional debt.”

The study showed Woonsocket, Central Falls, Providence and Pawtucket with combined debt and pension liabilities the highest in relation to total assessed property value. The study suggested a benchmark of less than 6.3%.

Woonsocket’s ratio topped the list at 20.3%, followed by Central Falls at 19.2%. Providence and Pawtucket checked in at 17.8% and 14.9%, respectively.

Central Falls has been reducing its liability since emerging from Chapter 9 bankruptcy five years ago. Central Falls is among the roughly 25% of Rhode Island municipalities with locally administered pension plans.

Magaziner has proposed lessening restrictions keeping municipalities from entering the $1.4 billion, state-run Municipal Employees’ Retirement System. That system, he said, would help cities and towns reduce costs.

“We’re not looking to assign blame,” Magaziner said of the debt study. “In some of these communities, relatively new administrations are trying to deal with problems that have built up over many years.

“We wanted to paint an accurate picture and set some targets and benchmarks. How each community proceeds would have to be different because of unique circumstances.”

Rhode Island municipal governance consists of a patchwork of overlapping authorities. In addition to 39 cities and towns, local government includes dozens of regional and local districts, some entirely within a municipality, and others across multiple municipalities.

Alan Schankel, a managing director at Janney Capital Markets in Philadelphia, called the study suitable for a “Bond Analysis 101” class.

“I enjoyed reading it,” said Schankel. “It’s also good for people who are not professional analysts. It provides a number of ways to look at the credit system. There’s a lot of good complimentary data.”

The public response has been positive, said Magaziner.

“We are shining a spotlight on the state’s responsibilities. There’s been very good feedback about our undertaking. We made it visual and easy to understand.”

The pension board held public meetings on the report throughout the state before the report went public.

Magaziner said the next study, due in two years, will add data on other post-employment benefits. The recent report did not include OPEB liabilities.

“OPEB is much more difficult to estimate because of the rate of inflation and healthcare costs,” he said.

Magaziner’s office spent about nine months of the study, and worked with outside groups that included Public Resources Advisory Group, the state’s financial advisor; Pew Charitable Trusts; and the Center for Retirement Research at Boston College.

"We created a tool for the state. Our goal wasn’t to do analysis,” said Jean-Pierre Aubry, associate director of state and local research at the Boston College center.

“Rhode Island’s debt is higher than the national average, but they’re not in the top five.”

Municipal issuers, he said, have become more aware of pension-related liabilities in recent years.

“I do think they’ve become more sensitive to the costs since the financial crisis and the ensuing economic downturn. At the same time, new GASB [Governmental Accounting Standards Board] rules are changing.”

Magaziner last week announced $7.2 million in savings by refunding $70 million in state debt to take advantage of more favorable interest rates.

He said the state would save $3.4 million of that amount in the upcoming fiscal year alone as the outstanding principal dropped from $70.4 million to $66.9 million.

Rhode Island also sold $91 million of general obligation bonds for new capital projects that voters approved. This was the second competitive bond sale the state had held in more than a decade.

The state sold the bonds at a 2.94% interest rate.

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