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Fitch, National Rating Firm Affirm’s Woonsocket Bonds at BBB- and the Outlook at Negative

Thursday, December 09, 2010

 

Fitch has rated the General Obligation bonds of the City of Woonsocket at BBB-, the rating agencies lowest investment grade. The firm also assigned Woonsocket a Negative Rating Outlook which is an improvement over their previous "Rating Watch Negative."

According to Fitch, the rating rationale was based on the following factors:

--Fitch's decision to remove the Rating Watch Negative reflects the city's successful sale of deficit financing bond anticipation notes (BANs), the pay-off of its outstanding tax anticipation notes, and progress towards future fiscal stability through prudent management actions.

--The Negative Outlook reflects Fitch's ongoing concern with the city and school department's ability to maintain balanced budgets and restore financial reserves.

--The city has satisfied the challenging state pre-requisites to issue deficit financing bonds in March 2011, and continues to work with the state to formulate a plan to improve its financial condition.

--The city's general fund and school fund have experienced significant deterioration and fallen to negative levels after repeated yearly operational deficits due to poor budget estimates, reduction in state aid and increased employee costs.

--City demographics are weak with high unemployment levels and low income levels

--Revenue generation is limited and is reliant primarily on property taxes, currently at high levels, but city council has not been resistant to tax at the maximum level.

--Debt levels are high with below-average amortization rates.

WHAT COULD TRIGGER A DOWNGRADE?

--Failure of the city or school department to operate within a balanced budget.

--Inability to obtain market access to refinance deficit financing BANs when due.

--Inability to adequately manage existing pension and potential OPEB liabilities.

In part, Fitch reports:

"The city's revenue raising flexibility is limited due to statewide annual limits on property tax levies causing additional stress on the city. After voting down a proposal to impose a supplemental tax on property owners last fall, which would have alleviated some of the city's fiscal pressures, the city council approved an additional $5.5 million increase in the fiscal 2011 tax levy equivalent to the full amount of lost motor vehicle reimbursement revenues. The city was able to exceed the statewide property tax levy cap limit in fiscal 2011 with approval by 4/5ths of city council to make up for lost state aid revenues.

To offset the decline in city revenues the city has been forced to cut expenses in all areas and manage spending. Payroll costs have been reduced through attrition, furlough days, reduction in salaries, and unpaid vacation days. The city has been working with its unions seeking concessions and has had success in making changes to health care co-pays and increased deductibles that will provide expense savings."

 

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