PROVIDENCE, R.I. - Governor Lincoln D. Chafee and General Treasurer Gina M. Raimondo today noted that Standard & Poor’s Rating Services (S&P) has revised its ratings outlook from negative to stable on Rhode Island’s bonds and confirmed the state’s rating of “AA” on its general obligation bonds. The new ratings outlook reflects the firm’s view that Rhode Island’s government framework and financial management procedures are strong. However, the report also cautioned that the state’s significantly underfunded pension system will have a negative impact on the state’s rating, if funding levels fall further. The pension is currently only 48 percent funded.
“This improvement in Rhode Island’s outlook reflects Standard & Poor’s confidence that the budget I have proposed to the General Assembly will continue to strengthen Rhode Island’s government framework and it financial management,” Governor Chafee said. “In addition, I am proud that my budget also invests in education and infrastructure, and looks ahead to the future by beginning to address structural deficit issues now.”
“During this era of heightened financial scrutiny, it is encouraging that the state has been recognized for its continued efforts in addressing its fiscal challenges,” Treasurer Raimondo said.
This is the first report S&P has issued on Rhode Island since the firm published a revised rating methodology for states in January. According to S&P, the new methodology provides “greater transparency on how the rating for each state is determined using the combination of various rating factors.” S&P assesses each rating factor using credit metrics and overriding factors. This new analytic framework now includes: • Government
• Financial Management
• Budgetary Performance
• Debt and other liabilities (including pension and OPEB)
S&P now includes scores for each of these rating factors in its report. The scale ranges from one to four, with one being the strongest and four being the weakest. Rhode Island’s scores range from 1.5 to 2.6.
Rhode Island ranked strongest on its government framework at 1.2, and on its financial management at 1.5. The state was also praised for its flexibility in its ability to increase the rate and base of its major revenues, and also to decrease its expenditures. It ranked the worst for its debt and liability profile at 2.6, which demonstrates a need to fix the state’s pension system.
“There is still much work to be done, especially in the area of creating a stable and secure retirement system,” Raimondo continued. “But this confirmation and improvement will help ensure that the state will be able to enter the bond market later this spring on the most favorable terms possible.”
The state uses bonds to finance the construction of government facilities, including schools, roads and bridges, among other vital infrastructure.