State Aid Legislation 'Credit Positive' for City

that gave East Providence a $12.6 million advance in state aid is considered a positive move for the city's financial future, according to Moody's Weekly Credit Outlook report dated Jan. 23.

"The advance is credit positive for East Providence because it will reduce dependence on interim cash flow borrowing, which has added additional costs and risks to the city’s strained finances," reads the report. "The law is also credit positive for Rhode Island local governments in general, as it creates a new mechanism for the state to provide relief to severely distressed local governments."

According to the report, in November 2011, the start of its fiscal year, East Providence management estimated that it would need approximately $30 million in additional cash flow borrowing to operate until the spring state aid disbursement. The city issued a $10 million six-month note in December, costing $195,000 in interest. The advance of state education aid is not a loan and the city will have to reimburse the state $13,000 for lost interest on the cash, reads the report.

The advance is expected to provide the city with sufficient cash through April, at which time there will still be a projected $7.4 million cash flow shortfall. The city may need to access additional cash flow borrowing at that time to continue to operate until the majority of its property taxes are received in June.

"In addition to its specific benefit to East Providence, the new legislation creates an additional tool for the state to assist distressed local governments under state oversight," reads the report. "The state may now advance appropriated aid to municipalities that are under the second level of the state’s oversight program, a category that currently includes only East Providence."