What Happened?
Moody’s Investors Service downgraded the City of Warwick, RI, bond rating to A1 with a negative outlook.
According to Moody’s, the negative outlook “reflects the continued underfunding of the city’s single employer Police Pension and Fire Pension Plan,” which reports a total unfunded liability of $242 million.
Interestingly, Moody’s cites Warwick having a large tax base with slightly above average wealth levels, low debt burden and adequate financial position as it downgraded its general obligation rating.
Strengths & Challenges
The following strengths and challenges were mentioned by Moody’s:
Positive:
- sizable tax base
- employee related expenditure freezes
- increased state education aid
Negative:
- weak pension funding
- underfunding the locally administered plan
- taxable base declines
- enterprise require transfers from General Fund
Further Downgrades
If continued deficits in the Water and Sewer fund occur, which require transfers from the General Fund, and the pension remains underfunded, Moody’s stated further downgrades could occur.
Other Cities
New Haven, CT, received a downgrade with pension obligations mentioned as a factor and Portland, OR, was recently issued a warning that its bond rating status will be studied to determine if its pension liabilities are threatening its overall budget worthiness.