PROVIDENCE, R.I. (WPRI) – Rhode Island got a mostly positive report card about its finances from Moody’s Investors Service on Monday, with the Wall Street rating agency praising local leaders for taking steps they said have improved state government’s fiscal health.
Moody’s analysts Marcia Van Wagner and Sarah Vennekotter upgraded the outlook for Rhode Island government’s financial condition from negative – where it has been since May 2011 – to stable.
They also kept the state’s general-obligation bond rating at Aa2, the third-highest level on the Moody’s scale, which is where it has been since April 2010. The announcements came as the state prepares to issues a series of bonds later this month.
“The change in outlook to stable from negative reflects the state’s success in shoring up its finances,” Van Wagner and Vennekotter wrote, citing improved cash flow and “adequate” reserves; the 2011 pension law; economic and demographic improvements; and “reduced uncertainty” about the impact of expanded gambling in Massachusetts.
Gov. Lincoln Chafee, an independent-turned-Democrat who is leaving office after a single term, hailed the news in a statement.
“I am pleased that Moody’s is acknowledging our strong fiscal management and my leadership to ensure that we are moving in the right direction through investments in education, infrastructure and workforce development,” Chafee told WPRI.com.
The Moody’s report offered a generally upbeat assessment of how the Chafee administration has managed Rhode Island’s finances and suggested reasons for optimism about the health of the state’s economy, but also warned about potential pitfalls.
Rhode Island government’s cash balances, including reserves, have risen from a low of 0.6% during the recession to more than 5% in 2012-13, Moody’s said. The state also hasn’t had to issue short-term debt to cover expenses since 2013, which before that had been done in 17 of the previous 23 years.
Wagner and Vennekotter noted the state finished its 2013-14 fiscal year, which ended June 30, with a higher-than-expected budget surplus of $68 million, though much of the money has already been allocated to balance this year’s budget. However, they expressed concern about projections that the state’s budget deficit is on track to balloon from $173 million in 2015-16 to $464 million in 2018-19.
Those deficits are driven in part by competition from new gambling facilities in Massachusetts, which has already granted a slot-parlor license just over the Rhode Island border in Plainville. Nevada is the only state that gets a larger share of its state revenue from gambling than Rhode Island does, according to Moody’s.
The Chafee administration has commissioned consulting firm Christiansen Capital Advisors LLC to update its 2012 analysis of how the Massachusetts gambling facilities will impact Rhode Island’s budget, Chafee spokeswoman Faye Zuckerman told WPRI.com. The updated analysis is supposed to be finished before next month’s biannual revenue estimating conference.
Two other concerns highlighted by Moody’s related to pensions and 38 Studios.
Wagner and Vennekotter said Rhode Island would face “difficult budgetary adjustments” if a court rules the 2011 pension overhaul unconstitutional, though they don’t expect a final decision until “2016 if not later.” Moody’s would downgrade the state’s bond rating if lawmakers stop making payments on the bonds sold to benefit Curt Schilling’s bankrupt game company, they said.
The state’s debt burden remains high by national standards, according to Moody’s, but has fallen significantly since the mid-1990s, from nearly 9% of personal income then to 4.5% now. Lawmakers want Rhode Island voters to approve borrowing $248 million through bond referendums on the November ballot.
On the health of the state’s economy, Wagner and Vennekotter sounded a cautious note.
“Rhode Island’s small and narrow economy has generally underperformed the nation as well as its New England neighbors for decades, as its manufacturing base eroded and the state has struggled to generate substitute sources for economic growth,” they wrote.
Employment is up 1.3% in Rhode Island so far this year, compared with 1.8% nationally, and even then they noted the local data is “subject to large sampling errors” due to the state’s small size. Additionally, Rhode Island’s total annual personal income growth averaged 3% from 2010 to 2013, compared with 4.3% nationally.