New report lays out Prov.'s budget woes

PROVIDENCE, R.I. (WPRI) - A new report from a top credit-rating agency in New York paints a grim picture of Providence's finances in the wake of the recession.

Providence's financial position has "narrowed" over the past two years because of $35 million in state aid cuts and declining property values, Moody's Investors Service said in a report issued this week and obtained by WPRI.com.

And it warned that the incoming administration of Mayor-elect Angel Taveras "will be challenged to regain fiscal stability" anytime in the near future as further aid cuts loom and the economic recovery remains "slow."

Before the recession, the Cicilline administration "had a long history of balanced operations," with budget surpluses recorded each year from 2004 to 2008 that left the city with $22.4 million in reserves.

Since then those reserves have shrunk by about two-thirds to $8.1 million, after some of the money was used to cover deficits over the past two years.

The short report offers a broad overview of Providence's financial position. It was put together by Moody's as the city government prepares to sell $33.3 million in new bonds to pay off other debt. The city's credit rating was left unchanged at "A1."

This year's city budget also remains in flux nearly halfway through the fiscal year after the City Council failed to pass a spending blueprint last summer. In the meantime, city departments are operating with the same funding they got in last year's $639 million budget.

Moody's also raised the alarm about Providence's $804 million unfunded pension liability – the amount the city has promised its retirees without putting money aside to cover the payments – as well as its $593 million estimated liability for other retiree benefits such as health care.

Pension contributions and debt payments accounted for 17 percent of city spending in 2008-09, Moody's said. The city government has been making the full annual contribution to its pension fund recommended by actuaries for the last three years.

Providence's latest property revaluation showed the impact that the economic downturn has had on the capital's $10.2 billion tax base, Moody's said.

Assessed values dropped by 12 percent across the city, with single-family homes losing 24 percent and multifamily units plunging 37 percent. Foreclosures peaked in 2008 and have "started to moderate," city officials told Moody's.

The unemployment rate in Providence was 13.1 percent as of September, compared with 11.8 percent statewide and 9.5 percent nationally.

On the plus side, Moody's said Providence continues to benefit "from its large government, health care and higher education presence, and remains a major center for employment in the region." The report pointed to the $45 million new medical school facility Brown University is building in the Jewelry District as a positive sign.

tnesi@wpri.com