Moody’s: Providence finances jeopardized by Medicare rulingFebruary 9th, 2012 at 12:34 pm by Ted Nesi under Nesi's Notes, On the Main Site
No surprise, perhaps, but Moody’s Investors Service has weighed in and agreed with Providence Mayor Angel Taveras and Governor Chafee that last week’s court ruling blocking the capital from moving retirees from Blue Cross to Medicare could do major damage to its battered balance sheet.
In a report issued Tuesday, Moody’s said Superior Court Judge Sarah Taft-Carter’s injunction barring the $6 million in Medicare savings puts in jeopardy “a relatively small, but important component” of the city’s balanced budget plan. Taft-Carter argued the “alleged savings would not save the city from financial ruin.”
Moody’s, which downgraded Providence’s credit rating to A3 with a negative watch last March, called the ruling a “credit negative” for the capital. Taveras said the Medicare decision has the city on “the brink of bankruptcy.” The Rhode Island Supreme Court may decide Thursday whether to allow an expedited appeal by the city.
(Moody’s analyst Susan Kendall used Providence’s original $11.6 million estimate of the Medicare savings, which has since been cut to $8 million because of penalties the city must pay to sign the retirees up. Of that amount, $6 million is now in question for the police and fire retirees who sued.)
“Stagnant revenues and mounting pressure from city and school expenditures have driven [Providence's] annual budget deficits, resulting in a sharp decline in reserves,” Kendall wrote. She said the main reason the city didn’t start the year with a cash flow shortage was its decision to borrow money.
Kendall singled out former Mayor Buddy Cianci’s last years in office, along with market losses in 2002 and 2008, as key drivers of the city’s ballooning $901 million unfunded pension liability. “The city greatly underfunded its local pension system from 1998 through 2003, shifting the burden to future years,” she said.
Kendall added that “state oversight could be an option” for Providence because of its lack of cash reserves. Central Falls, which filed for bankruptcy last August, and East Providence are already under Fiscal Stability Act oversight. She also expressed concern about Woonsocket’s finances.
(chart: Moody’s Investors Service)