Moody's Announces Rating Improvement for East Providence
By Bob Rodericks
Good economic news continues to creep up in East Providence with the news that Moodys Investment Services has increased the bond rating for the city. Generally this means that it will become less expensive for East Providence to borrow money and debts shall decrease. The good economic news gave a chance for public officials to crow a bit. "We continue to move in the right direction as our Bond Rating is increasing ..This is a result of the past budget being properly funded in all the right area and funding the rainy day fund early our city is improving before our eyes everyday," said Ward 3 councilman Tom Rose. Rose said that he was particularly happy that the city had developed a healthy rainy day fund. "I think that we can rebuild our city with this current budget on the table and do so with a no tax increase," added Rose. "It will also be possible for us to do so while maintaining the proposed $10,000 business tax exemption incentive," Rose said. "We are going in the right direction in this city at all levels. Morale is coming back," said Rose.
Councilwoman-at-Large, Tracy Capobianco was similarly impressed. "We continue to make the right decisions in the best interest of this city," Capobianco said. "I think we are balancing the right amount of spending on needed improvements that residents want and fiscal budgetary planning, which is making a positive impact on our budget," said Capobianco.
Ward 1 councilman Jim Briden likes the fact that the city has made cuts and other fiscal changes to its operation. "Cutting approximately 900k in expenses from the current budget, freezing the phasing out of the homestead exemption, and keeping property taxes down have been important accomplishments of this City Council. We have served the taxpayers well and made good decisions so as to promote the long-term fiscal strength and stability of East Providence," offered Briden as his take on the news from Moody's.
Ward 4 councilwoman Chrissy Rossi added that "the best part about this upgrade is that Moody's gave us two upticks and a positive outlook! That is very rare and means EP is moving ahead. I'm so proud," beamed Rossi.
Moody's Press Release:
New York, September 26, 2014
Moody's Investors Service has upgraded the City of East Providence's (RI) general obligation rating to Baa1 from Baa3, affecting approximately $18.9 million in outstanding parity debt; the outlook is positive. The bonds are secured by a general obligation unlimited tax pledge. Concurrently, Moody's has also upgraded to A2 from Baa1 the rating on the Rhode Island Health and Education Building Corporation (RIHEBC) Bond Issue, Series 2007C; the outlook this rating is also positive.
SUMMARY RATING RATIONALE
The upgrade of the underlying general obligation rating to Baa1 reflects the continued financial improvement, following the disbanding of the state-appointed budget commission in 2013. The city has significantly increased its reserve and liquidity levels through adherence to formal fiscal policies and the adoption of more conservative budgeting practices. Further, the rating reflects the reduction of the city's unfunded liability in its self-administered pension plan and continued commitment to fully funding the annual required contribution to the plan. In addition, the Baa1 rating incorporates East Providence's sizeable tax base with average wealth levels and a manageable direct debt burden.
The positive outlook reflects our expectation that the city will maintain structurally balanced operations and continue to augment its reserve and liquidity levels, while fully funding the required contributions for pension and OPEB.
The upgrade to A2 from Baa1 on the underlying rating of the RIHEBC Series 2007C Bonds reflects the upgrade of East Providence's underlying GO rating. RIHEBC's 2007C bond issue is an unenhanced pool and is rated using a 'weak link plus' approach, with East Providence being the lowest-rated among the pool's participants. The A2 pooled financing rating incorporates East Providence's Baa1 GO rating and its relatively low (12% at inception, currently 7.5% due to the repayment structure) portion of the pool as well as the Aa3 rating of the other participant, Foster-Glocester School District. The significant amount of debt service (51%) directly paid to RIHEBC by the state and the availability of the State of Rhode Island's (Aa2 negative) intercept of state aid for the remainder of the participants' debt service provide strong additional security and lift the pool rating above the weakest link rating of Baa1.
-- Improved management practices
-- Continued oversight through state appointed Finance Advisor
-- Improved reserve levels and cash flow position
-- Elimination of School Fund deficit
-- Improved public safety pension plan funding through one-time infusion of settlement proceeds and return to full ARC funding
-- Ongoing expenditure demands, coupled with limited revenue raising flexibility
-- Ongoing reliance on cash-flow borrowing for operations
-- Despite improvement, high liabilities for pension and OPEB
-- Limited ability to raise property tax revenue under city and state property tax caps
The positive outlook reflects our expectation that the city will continue make appropriate adjustments as needed to maintain fiscal stability. The city's ability to maintain structural budget balance, improve operating reserves, and continue to address its pension and OPEB liabilities will be important factors in future rating reviews.
WHAT COULD MAKE THE RATING GO UP
-Continued trend of structurally balanced operations
-Reduced or eliminated reliance on cash-flow borrowing
-Continued improvement in fund balance and liquidity positions
-Continued full funding of public safety pension ARC and increased funding ratios
WHAT COULD MAKE THE RATING GO DOWN (remove the positive outlook)
-Increased reliance on cash-flow borrowing
-Failure to maintain a trend of structural balanced operations
-Failure to fully fund the public safety pension ARC
-Weakening of General Fund or School Fund balance positions.