Mayor Jorge Elorza today announced that Fitch Ratings has upgraded the City of Providence’s outstanding General Obligation (GO) Bonds to ‘A-‘ and has assigned a Stable outlook. In addition to upgrading the City’s GO Bond rating, Fitch has upgraded Providence’s Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-‘. According to Fitch, the GO bond rating two steps above the IDR reflects the enhanced recovery prospects for GO bondholders afforded by the statutory lien on pledged property tax revenues in Rhode Island law.
“I am excited to see that Fitch has recognized our efforts and has upgraded our credit rating,” said Mayor Jorge Elorza. “We have a lot more work to do, but combined with our recent announcement of a large operating surplus, this is another positive sign that the city’s finances are moving in the right direction.”
The Fitch report cites the City’s fiscal year 2016 combined surplus of almost $9.5 million, including the $4.3 million budgeted surplus to reduce the cumulative deficit and the $5.1 million additional operating surplus. It also takes into consideration the structural changes made in the fiscal year 2017 budget, the elimination of risk of one-time revenues and the establishment of working groups that are exploring how to diversify the City’s revenues. Fitch states that while financial flexibility is still limited, they expect improvement over time supported by growth in the tax base and improved budget practices.
The report also notes that the rating is “sensitive to the city’s ability to continue to address any budget imbalances, restore reserves to more adequate levels, and maintain an adequate level of financial flexibility.” Fitch cites elevated unfunded pension liabilities and OPEB liabilities as high but that “overall debt levels of $262 million, net of state reimbursement for projects, are low (4% of personal income) and are not expected to materially change due to manageable plans for future debt and a rapid principal amortization.”
This is the first time Providence has been reviewed under Fitch’s revised criteria for U.S. state and local government credits, which was released on April 18, 2016.
The review was conducted in connection with Fitch’s surveillance of the City’s credit, which occurs at least annually.