City Unlikely to Avert Credit Downgrade

Moody's Investors Services has indicated that Woonsocket's bond rating is likely to be downgraded as a result of the school department's $2.7 million deficit, despite this year's in city finances and reporting.

The ratings agency followed suit after Fitch Ratings on a Negative Watch list last month in response to the education deficit. The following week, Moody's placed the city's bonds on review.

Finance Director Thomas Bruce was still cautiously hopeful that the city's "clean" 2011 Financial Report - an indication that auditors had no problems or questions regarding the accuracy of the information provided by Woonsocket - could prevent the drop. The finance director is now focused not on "if" but on "how far" the city's rating will fall.

Bruce spoke with Vito Galluccio, an analyst for Moody's, last week, presenting the city's financial progress. Woonsocket's Comprehensive Annual Financial Report was submitted on time for the first time in six years. The city reported a surplus in their general fund, water fund and wastewater fund. The auditor's opinion was unequivocal.

"He said, 'that's great' and repeated back all of the positives," said Bruce. "But at the end of the conversation he said 'you're likely to be downgraded. I think you already know that.'" Galluccio indicated that the deficit in the other half of the equation that completes Woonsocket's fiscal picture- the School Department- outweighed any positive gains. 

Woonsocket's current bond rating- the indicator used by financiers to decide if they should invest in the city's projects- is at Ba1-  the highest grade of junk bond status. The city could fall a single step to a Ba2 rating, or could be downgraded a far as Class C- a rating synonymous with a municipality on the verge of default.

"The School Department deficit is just too much of a liability," said Bruce, adding that the agencies may be waiting to see if the state intervenes in city finances before issuing a verdict.

"From Moody's perspective, they see the state supporting our efforts," said Bruce. "It's now just a matter of how many steps."