PROVIDENCE, R.I. (WPRI) – Don’t look now, but Providence just got more good news on its financial outlook.
Fitch Ratings announced Thursday it has upgraded the city’s Issuer Default Rating from BBB- to BBB and its outstanding general obligation bonds from BBB- to AAA-, days after Mayor Jorge Elorza said Providence made a significant dent in its cumulative deficit by posting a $9.5-million surplus for the 2015-16 fiscal year.
“Recent revenue growth and expenditure controls have contributed to projected surplus results for fiscal 2016 and progress in reducing Providence’s general fund deficit balance position,” Fitch wrote in its report.
Fitch noted that the city’s “financial flexibility remains limited,” but said it expects “low and gradual improvement supported by tax base growth and improved budget practices.”
“I am excited to see that Fitch has recognized our efforts and has upgraded our credit rating,” Elorza said in a statement. “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.”
Fitch said it expects the city’s “natural pace of spending growth to be above that of revenue growth,” meaning Elorza will have to continue to control costs. The agency said the school department has benefited from an increase in revenue through the state funding formula, but that increase is expected to end after the current fiscal year.
Fitch also noted that Providence still faces massive unfunded obligations to retirees, including a $952-million pension liability and $981-million liability with other post-employment benefits (OPEB), like healthcare.
Earlier this month, Moody’s Investors Service chose to keep the outlook on the city’s credit rating negative.