Rhode Island communities face more credit-rating cuts as pension liabilities rise, the local economy declines and property values plunge, Moody's Investors Service said, citing sharper trends than in most states.
The growing cost of retirement benefits is “reaching a crisis point” for many of its local governments, Moody's said in a report released Monday. Rhode Island cities and towns operate their pension plans independently and so were excluded from a state law passed last month that suspended cost-of-living increases and lifting retirement ages for public workers.
“A lot of national negative trends are particularly acute in Rhode Island,” Naomi Richman, an analyst at the credit rating company in New York, said by telephone before the report was released. The company has a negative outlook on U.S. local governments, she said. The average debt grade for Rhode Island municipalities, at A1, is a step below the Aa3 national median.
Municipal pension plans had just 34% of the assets needed to meet projected obligations, the company said.
Communities may end up collecting less property tax as values fall, Moody's said. This year, the real estate tax base in Providence, the state's capital and largest city, fell 14%.
Rhode Island's economy is among the weakest in the U.S., with unemployment at 10.4% in October, the highest level in New England and above the 9% national rate. There is a 60% chance that the state, which has cut aid to cities and towns by about $200 million in the past five years, will fall back into recession within six months, Moody's said.
The trend for 2012 is “likely to favor downgrades,” and there will be “few if any upgrades,” Moody's said in the report. It also warned that a state oversight program, set up in June 2010 to help municipalities facing financial pressures, is untested and may be overwhelmed by multiple simultaneous requests for assistance.
