Rhode Island officials, speaking after Moody's Investors Service elevated the bond rating of Central Falls, envision brighter days for the once-bankrupt city.
"Our handling of the Central Falls bankruptcy presents a national model to other municipalities in dire financial straits," Gov. Lincoln Chafee, echoing comments last month by a bankruptcy judge, said Friday after Moody's raised Central Falls' rating two notches, to B2 with a positive outlook from Caa1 with a negative outlook.
The rating, however, is still in junk status.
Moody's cited the city's six-year financial plan, quick implementation of a balanced budget and making its general obligation bond payments while in bankruptcy. The upgrade affects $14.7 million in outstanding general obligation bonds. Moody's also affirmed the city's Ba1 underlying rating and stable outlook on the Rhode Island Health and Educational Building Corp.'s Series 2007B bonds, affecting $1.3 million in rated debt.
Judge Frank Bailey in Providence, R.I., approved Central Falls' emergence from Chapter 9 protection in September, ending only a 13-month stay. A state law enacted in 2011 that gave bondholders priority in a bankruptcy filing enabled the city to stay current on its GO payments.
When it filed bankruptcy on Aug. 1, 2011, Central Falls had an $80 million unfunded pension liability. While in Chapter 9, it reworked its pension and other post-employment packages, reducing benefits to police and fire retirees by up to 55%.
"The bankruptcy process has resulted in a significant reduction in the financial pressure related to employee salaries, pensions and health care. The rating also incorporates Moody's expectation that the city will continue to make general obligation debt service payments, given the state law creating a priority lien for general obligation bondholders and the absence of challenges to the payments by other creditors," Moody's said.
As part of a plan to restore local control to Central Falls, where the mayor and City Council had their powers stripped, a special primary for the now-vacant mayor's seat is scheduled for the Nov. 6 election day, with the general election set for Dec. 11.
Charles Moreau resigned as mayor last month while agreeing to plead guilty to a kickback scheme involving the boarding up of houses.
The state has been promoting Central Falls activities, including a recent restaurant week. "We want Central Falls to be a place where people visit and do business," revenue director Rosemary Booth Gallogly said in a recent interview with The Bond Buyer in Providence.
Moody's, however, warned that Central Falls still faces serious challenges, including budgetary pressure from escalating expenditures and projected weak revenue growth, including the recent loss of an annual payment in lieu of taxes from the Wyatt Detention Center.
"The city also has a limited and declining tax base characterized by weak socioeconomic indicators, including the highest poverty rate in the state, and an elevated debt burden," Moody's said.