Fitch’s Kevin Dolan criticized Cicilline’s administration in fairly stinging terms for a credit analyst, blaming “imprudent budgeting decisions” and “rapid” spending growth for “the city’s precipitous decline in financial flexibility over the last year.”
Fitch cut the city’s rating two notches to AA- and lowered its outlook from stable to negative. Like Moody’s, Fitch cited the March 3 report of Mayor Angel Taveras’ Municipal Finances Review Panel as the trigger for its reevaluation.
The downgrade will raise more questions about how much Cicilline knew about the city’s precarious fiscal health last year as he campaigned for Congress. Cicilline said Providence was “in excellent financial condition” as recently as Oct. 29.
I’ve asked Cicilline spokeswoman Jessica Kershaw for the congressman’s reaction to the two downgrades. I’ll update if I hear back.
There were no surprises in Fitch’s statement considering what is now known about Providence’s money problems. But Dolan raised specific concerns about whether the city would have enough cash to pay its bills between now and the end of the fiscal year on June 30.
Fitch also praised the new Taveras administration for “its commitment to restoring balanced operations” and “beginning to make difficult decisions that could affect city services,” but warned that many cuts, particularly those requiring concessions from city workers, “may be hard to implement.”
Fitch agreed with Cicilline’s argument that state aid cuts and the recession are “primarily” responsible for lower revenue, but added: “Expenditure growth has been rapid and is outpacing revenues due to the strong labor presence and onerous pension contracts indicating limited flexibility to make expenditure adjustments.”
Fitch said it would take another look at Providence’s cash position before the end of the fiscal year and warned: “Failure to stabilize liquidity and rectify the current year deficit would likely result in a multi-notch downgrade.” That could raise the city’s borrowing costs, putting further pressure on the budget.