News Summary
Fitch Ratings has upgraded Rhode Island’s Long-term Issue Default Rating from AA to AA+, reflecting improved creditworthiness due to declining liabilities and pension reforms. Despite challenges such as a slower economic growth rate and impending bond sales, the upgrade indicates a positive trend in the state’s financial recovery. The upcoming $273.6 million bond sale is expected to further bolster investor confidence amidst cautious economic projections.
Rhode Island has received a significant boost to its financial reputation as Fitch Ratings upgraded the state’s Long-term Issue Default Rating from AA to AA+. This upgrade marks an important step in affirming the state’s creditworthiness and financial stability in light of recent economic developments.
The upgrade is largely attributed to Rhode Island’s declining long-term liability burden in comparison to its tax revenue. According to a report released on March 28, 2024, the state’s improved financial standing has been bolstered by the “growing financial relief” resulting from pension reforms implemented in 2012. These changes have had a notable impact on the state’s fiscal health.
However, it’s worth noting that recent adjustments to the pension system announced in 2024, such as the restoration of cost-of-living adjustments for certain retirees, have introduced new near-term liabilities. As of June 2024, Rhode Island’s pension system is reported to be 63% funded, which translates to a total liability of $4.7 billion.
Fitch’s upgrade coincides with an upcoming bond sale scheduled for June 9, 2025, during which the state plans to issue $273.6 million in general obligation bonds. This bond offering includes $196.3 million in tax-exempt series A bonds, $27.6 million in federal, taxable series B bonds, and $49.8 million in tax-exempt series C bonds. The favorable AA+ rating from Fitch is expected to instill strong confidence among potential buyers. The bonds are additionally rated AA by S&P Global Ratings and Aa2 by Moody’s, reinforcing the positive outlook on the state’s borrowing capacity.
Despite these advancements, Rhode Island’s economic environment is still facing challenges. Fitch has noted that the state’s education and health service-centered economy is growing at a slower pace than the national average. Contributing factors to this sluggish growth include a higher median age along with a smaller population growth. Fitch predicts modest long-term economic growth that aligns with inflation rates, presenting a cautious outlook for the state’s financial future.
The potential for Rhode Island’s credit rating to improve further hinges on various legislative factors. If the state were to initiate changes that either reverse pension cuts or alter the current debt management practices, it could negatively impact Rhode Island’s financial standing, possibly leading to a rating downgrade. On the other hand, stronger revenue growth or strategic alterations to increase the 5% constitutional limit on the state’s reserve fund could result in a further upgrade of its rating.
In summary, the recent upgrade of Rhode Island’s credit rating to AA+ by Fitch Ratings is a positive indication of the state’s financial recovery. This action reflects a decrease in long-term liabilities relative to tax revenues and acknowledges the effects of past pension reforms. With a significant bond sale approaching, Rhode Island is poised to navigate its economic landscape cautiously, balancing growth opportunities with fiscal management to maintain and improve its credit rating in the near future.
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