The new attitude at the municipal rating agencies, which are now taking pension liabilities into consideration in their ratings outlooks for states and cities, has helped produce a negative outlook for Rhode Island, a state with a very messy budget situation which few people are following closely. Moody's has warned it might downgrade the state's credit rating based on Rhode Island's growing pension problems and its reliance on one-shot revenue deals.
The state's new treasurer, Gina Raimondo, has warned that the annual cost to the state budget of servicing its pensions could grow from $312 million in 2010 to $615 million in 2013. She says that the state's unfunded pension liabilities are at least $6 billion but could be as high as $9 billion.She's recommended raising the state's retirement age to 65 for government workers, shifting to a hybrid system that combines a defined benefit plan with a 401(k) style retirement plan, and suspending annual cost-of-living adjustments for current retirees until the state can stabilize its pension system.
Adding to the state's woes is the poor condition of its cities. Providence recently had its ratings downgraded by two notches. The city borrowed some $48 million, using the city's fire stations and headquarters as collateral, to balance its 2010 budget and has used up most of its reserve fund, shrinking it from $17 million to $2 million in just one year. It faces a staggering $70 million budget gap this year and a projected $110 million gap next fiscal year, and recently officials have raised the prospect of declaring bankruptcy. Meanwhile, Central Falls, a Rhode Island city of some 19,000 residents, is already in state receivership because of its fiscal failings.
Adding to the state's woes is the poor condition of its cities. Providence recently had its ratings downgraded by two notches. The city borrowed some $48 million, using the city's fire stations and headquarters as collateral, to balance its 2010 budget and has used up most of its reserve fund, shrinking it from $17 million to $2 million in just one year. It faces a staggering $70 million budget gap this year and a projected $110 million gap next fiscal year, and recently officials have raised the prospect of declaring bankruptcy. Meanwhile, Central Falls, a Rhode Island city of some 19,000 residents, is already in state receivership because of its fiscal failings.
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