Chipping away at the state’s unfunded pension liability has strengthened Rhode Island’s financial footing, according to Fitch Ratings.
The credit ratings agency recently upgraded its rating for the state’s Long-term Issue Default Rating from AA to AA+, reflecting improvements in Rhode Island’s credit worthiness. Fitch in a March 28 report touted the state’s declining long-term liability burden compared with tax revenue, also noting the “growing financial relief” from 2012 pension changes.
However, the ratings agency cautioned that pension changes adopted in 2024, including restoring annual cost-of-living adjustments for a subgroup of state retirees, created near-term liabilities in the state pension system. The state pension was 63% funded, with a $4.7 million liability as of June 2024, according to the most recent actuarial report by GRS, a consultant for the Employees’ Retirement System of Rhode Island.
Fitch also issued an AA+ rating to $273.6 million in state general obligation bonds, signaling their strength to potential buyers ahead of a scheduled sale on June 9.
Rhode Island General Treasurer James Diossa courted 100 prospective investors during the state’s second annual investor conference on May 30. The bond sale 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 bonds, backed by state credit, also received an AA rating from S&P Global Ratings and an Aa2 rating from Moody’s Ratings. The latest ratings from S&P and Moody’s affirm agencies’ existing determinations of the state’s creditworthiness and stability.
Rhode Island’s education and health service-centered economy has grown slower than the national average, weakened in part by a higher median age and smaller growth in population, Fitch noted. Fitch predicted modest long-term economic growth, matching the rate of inflation.
Legislative changes that reverse prior pension cuts or change the state’s approach to debt management could worsen the state’s financial standing and lead to a negative rating action, Fitch said. Conversely, stronger revenue growth and policy changes such as increasing the 5% constitutional cap on the state’s reserve fund could result in a ratings upgrade.
This story was originally published by the Rhode Island Current.
