Fitch Ratings has downgraded the short-term rating on the State of Rhode Island and Providence Plantations' $350 million general obligation tax anticipation notes (TANs), fiscal year 2009 to 'F1' from 'F1+'. The downgrade is based on the meaningful deterioration in Rhode Island's economic performance and outlook in recent months in the context of an already severely strained financial position. The notes are due on June 30, 2009.
Following sale of the notes, in November 2008 the state released a revised budget estimate that reduced fiscal 2009 revenues by about $234 million and increased expenditures by about $128 million. The revisions resulted in a projected gap of about 11% of expenditures for fiscal 2009 and eliminated an already slender protective margin on the notes. Since November, the economic outlook for the state and the nation have worsened and, although tax revenues are on forecast through January, collections have weakened. There is risk of further reductions when the forecast is reviewed in May 2009. The governor is expected in the near term to submit a revised proposal to resolve the now $370 million fiscal 2009 shortfall that includes federal assistance from the enacted stimulus legislation. Rhode Island expects to receive more than $400 million in additional Medicaid funds through fiscal 2011 (about $130 million of those in fiscal 2009) and as much as $165 million in direct education aid, in addition to other assistance. Assistance from the federal stimulus package will mitigate but not resolve the state's budget challenges. Before considering federal stimulus monies and without any action to resolve the fiscal 2009 gap, the state would have a fiscal 2009 ending cash shortfall of $142 million after paying off the notes. The 'F1' rating reflects Fitch's expectation that the state will take steps to close the fiscal 2009 budget gap, as well as the state's flexibility to tap alternative internal liquidity sources and employ cash management strategies if needed.
For more information on the state, see the Fitch rating action commentary 'Fitch Rates Rhode Island Convention Center Auth's $72MM Revs 'A+'; Affirms GOs; Outlook to Negative' dated March 4, 2009, available on Fitch's web site at www.fitchratings.com.
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