Moody's Investor Service downgraded $115 million of the city's outstanding general obligation bonds and said its outlook remains negative because of Cranston's underfunded pension plan and lingering school deficit.
The city's general obligation rating was downgraded to A2 from A1.
The downgrade and negative outlook reflects "reduced financial flexibility following a series of reserve reductions, largely due to declining state aid and consecutive school fund deficits, resulting in an accumulated $8.9 million Unrestricted School Fund Deficit," the agency said in a release. "The rating and outlook also reflect the weak funding status of the city's Police and Fire Pension Plan (17.8 percent funded as of July 1, 2011) and continued underfunding of the annual required contribution, which is the equivalent to deficit financing."
Moody's said the unfunded pension liability is expected to increase as the city continues to underfund its annual pension obligation.
"Moody's believes the city will continue to be challenged to restore and maintain long-term structural balance and fully fund its pension obligations given continued revenue weakness and ongoing expenditure demands," the release stated.
The city was credited for enacting a deficit reduction plan for the school district, having a manageable direct debt burden and a large tax base.
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