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Tuesday, October 18, 2016

Finance Committee Withdraws Support for Mayor’s $40M Bond Issuance

Members of the Providence City Council Finance Committee introduced a resolution tonight that recommends withdrawal of support for Mayor Elorza’s $40 million infrastructure bond issuance.

While acknowledging that infrastructure improvements are important, committee members have routinely expressed their reluctance to overextend the city’s financial capacity, which would increase borrowing costs. Moody's Investment Services last week—and 10 months prior—warned that an increase in the city's debt burden would likely result in a reduction in its general obligation (G.O.) bond rating. The city’s G.O. bond rating is currently considered "Low Investment Grade" and one investment grade level above "Junk," which would yield higher borrowing costs. “The city has many needs,” said Council President Luis Aponte. “This proposed bond would only scratch the surface of our infrastructure needs. No need should take precedence over the city’s future financial wellbeing and fiscal health.”

“I’ve been deliberating this since July, and as a member of the finance committee and as Council President Pro Tempore, I take this matter very seriously,” said Councilwoman Sabina Matos. “In recent months, I’ve grown more and more concerned about the city’s finances. Even Governor Raimondo has recently expressed concerns about the city’s finances and unfunded debt liabilities. Last week, Moody’s Investor Services stated that any further reductions to the city’s reserves ‘will result in strong downward rating pressure.’ The city’s bond rating is one investment grade above junk status, and at this time, it is not appropriate for the city to take on new debt.”

Finance Chairman John Igliozzi also discussed the timing of the decision. “With all the information that has come to light, we now know for certain that this is not a fiscally responsible time to pursue more debt,” said Igliozzi. “The city’s unfunded debt liability to retirees is close to $2 billion. Moody’s came in and said our bond rating hasn’t changed from one investment grade above junk. At the finance committee two weeks ago, administration admitted that if its precedent-setting five-year contract is approved, the fire department will still exceed its budget by $8.7 million in overtime in the near future. We also have an outstanding $12.4 million owed to firefighters. That’s $20 million that this administration has created all on its own. And now we know for certain that these are debts the people of Providence will have to pay.”

Majority Whip Jo-Ann Ryan addressed concerns that have been at the forefront of discussion since the bond was first proposed: “We want to be good stewards for the people of Providence, and that requires being fiscally conservative in our efforts and looking ahead to the city’s financial future. In short, the entire bond process has been rushed. Absent a solid plan to spend the City's borrowing capacity and due to continuing fiscal challenges, this is not the right time to move forward with the Mayor’s $40 million bond issuance.”