City's Bond Rating Downgraded

Moody's Investor Services downgraded Woonsocket's bond rating from a Ba1 to Ba2 yesterday and changed the city's outlook to negative. The single step downgrade was largely expected and the direct result of a $2.7 million deficit in education spending.

A release from Moody's explains the rationale behind the downgrade, stating the "Ba2 rating reflects a continued deterioration of of the city's school operating financial position despite the recent issuance of deficit bonds due to multiple deficits in previous years."

In 2011, the city secured an $11.5 million deficit bond in hopes to use the funding to - a grade used by investors to judge if Woonsocket is credit worthy. Although the city made progress during the fiscal year, ending 2011 with a surplus and a "clean" financial report, a $2.7 million deficit in education spending proved too great of a liability.   

"It's very distressing in many ways because all of the progress that we made over the past several years has been undermined by the downgrade," said Mayor Leo Fontaine.

Moody's listed "improved city financial management practices and oversight" as one of Woonsocket's fiscal strengths. The negative outlook, however, is also a reflection of the city's underfunded pension plan.

If there's a positive takeaway from Tuesday's news, it is that the downgrade did not bring the city below junk bond status to a "C" rating. Finance Director Thomas Bruce that once he realized the downgrade was inevitable, he hoped the rating would only fall a single step.

A phone conference with a separate ratings agency, Fitch Ratings may have given city administrators a second reason for cautious optimism. Fontaine said Fitch indicated they are not likely to follow suit with Moody's. 

"They had a number of questions, following up on Moody's report," said Fontaine. "Interestingly enough they indicated they were waiting to see what was going to be happening with the state." Woonsocket's fiscal instability - as indicated by unreliable reporting in education spending - is being closely monitored by the Auditor General. The city has been given a Jan. 31 deadline to submit cash statements and year to date projections from WED.

"They indicated more of a desire to hold off, at least from the appearance they gave on the call," said Fontaine. "They may not take action to downgrade us."