Fitch Rates Rhode Island's $69.8MM Refunding GOs 'AA'; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings assigns an 'AA' rating to the following State of Rhode Island and
Providence Plantations' general obligation (GO) bonds:

--$69.8 million consolidated capital development loan of 2010, refunding series
A.

In addition, Fitch affirms the following ratings:

--$1.1 billion in outstanding GO bonds at 'AA';

--$232.8 million in outstanding appropriation-backed debt at 'AA-'.

The Rating Outlook is Negative.

The bonds are expected to sell via negotiation on or about April 7, 2010.

On April 5, 2010, Fitch Ratings recalibrated its U.S. public finance credit
ratings for states as well as the District of Columbia, New York City, and the
Commonwealth of Puerto Rico; the above ratings reflect this recalibration. Fitch
announced the recalibration in the 'Recalibration of U.S. Public Finance
Ratings' special report, which was published on March 25, 2010 and is available
at 'fitchratings.com' under the following headers: Sectors >> Public Finance >>
U.S. Public Finance >> Research. For more detail on the rating adjustments,
please see the March 25, 2010 report. Fitch will revise the remaining
tax-supported ratings along with water and sewer, public power
distribution-only, and public higher education ratings April 30, 2010, as
detailed in the March 25, 2010 report.

RATING RATIONALE:

--Rhode Island's economic performance has been among the worst of the states in
the downturn, with severe jobs losses, very high unemployment, and weak personal
income trends. The most recent data suggests that the state's recovery, which is
expected to be sluggish, has not yet begun. The state's real estate market
continues to suffer.

--Although longstanding financial controls remain in place, the state's finances
have been and continue to be strained, requiring significant one-time measures
to resolve budget gaps.

--Debt ratios are above average, although still in the moderate range. Pension
funding levels are low.

WHAT COULD TRIGGER A DOWNGRADE?

--The state's inability to implement sustainable budget solutions and address
other long-term liabilities in the context of persistent revenue declines due to
continued weakness in the state's economy.

--Continued deterioration in the state's economy and real estate market, that
further pressures financial flexibility.

SECURITY:

Bonds are general obligations of the State of Rhode Island and Providence
Plantations, secured by a pledge of the state's full faith and credit.

CREDIT SUMMARY:

The Negative Rating Outlook, assigned in March 2009, continues to reflect Rhode
Island's weak economy and severely strained financial position. After more than
two years of severe job losses, Rhode Island's unemployment rate of 12.7%
(February 2010) is the third highest of the states and well above the national
average of 9.7%. Weak conditions in the economy and real estate market continue
to pressure state revenues and challenge fiscal health and stability. After
enacting a balanced fiscal 2010 budget and ending fiscal 2009 with a deficit of
approximately $62 million, continued revenue declines as well as increased
social service demands created a current year gap of $219 million. The fiscal
2011 budget gap is estimated at $427 million. While the governor has proposed
plans to address both the fiscal 2010 and fiscal 2011 budget gaps, the state
legislature has not yet acted on either proposal. Preliminary details on the
legislature's 2010 supplemental budget are expected to be released as early as
Wednesday, April 7.

Rhode Island's economic performance throughout the recession has been amongst
the weakest of the states. After adding jobs every year from 1992 through 2006,
the state fell into the recession early, with year-over-year job losses
beginning in August 2007. Although the pace of job loss has slowed somewhat in
recent months, the February 2010 unemployment rate was high, at 12.7%, equal to
131% of the U.S. rate. The state's personal income indicators, although weak,
have shown relative stability in the downturn, with the state's year-over-year
quarterly declines not as severe as those of New England and the U.S. Per capita
personal income is slightly above average; 2009 personal income equaled 104.8%
of the U.S. The state's precarious economic environment is also exacerbated by
real estate market conditions. After years of strong real estate market
development and appreciation, Rhode Island has been seeing a steep market
correction, with additional pressures from delinquencies, foreclosures, and
subprime mortgages. The road to recovery in Rhode Island is projected to be long
and slow, with some forecasts projecting continued declines in residential real
estate for the next five years and other forecasts reporting that peak
employment will not return until 2016.

Similar to Rhode Island's recent economic trends, the state's finances felt the
effects of the recession early, with revenue declines beginning as early as
November 2007. The state has used numerous measures to close budget gaps in
recent years, including but not limited to steep cuts to state government
spending and personnel, drastic cuts to local aid, utilization of federal
stimulus money and other one-time solutions, implementation of pension reform,
and increases to some fees and taxes. Fiscal 2008 closed with a deficit of
approximately $43 million, even after deficit financing in the form of tobacco
settlement bonds, and rather than utilize reserve funds, state officials opted
to carry the shortfall into the fiscal 2009 budget. After enacting a balanced
fiscal 2009 budget, declining revenues and increased expenditures resulted in a
mid-year budget gap of roughly $360 million, which was subsequently closed with
a combination of revenue measures, spending cuts, one-time solutions, and
federal stimulus funds. Following downward revisions in the May 2009 consensus
economic forecast, a $70 million budget gap was projected for fiscal 2009. After
$22 million was appropriated from the state's reserve fund, the remainder was
carried forward into the fiscal 2010 budget. At the close of fiscal 2009, the
state's reserve carried a balance of $80 million, equal to 2.7% of revenues. The
enacted budget for fiscal 2010 totaled about $3.1 billion and resolved a budget
gap of $553 million (roughly 18% of revenues) with a combination of federal
stimulus funds, cuts to local aid, pension reform, and some undistributed
savings and one-time measures. In the state's most recent economic forecast
(November 2009), however, revenues were revised downward by $130 million for
fiscal 2010; combined with increased spending for social services and the fiscal
2009 deficit, the current year budget gap stands at approximately $219 million,
equal to 7.4% of estimated fiscal 2010 revenues.

In December 2009, the governor presented a supplemental budget addressing the
$219 million shortfall for fiscal 2010 with cuts to local aid, additional
pension reform, further reductions to state agencies, and one-time budget
solutions (including land sales and delay of reserve fund replenishment).
Subsequently, in January 2010, the governor presented a budget for fiscal 2011
totaling $2.9 billion and addressing a projected gap of $427 million. The
governor's budget recommendations for addressing the substantial fiscal 2011 gap
include $163 million in local aid cuts, $95 million in stimulus funds from two
additional quarters of enhanced FMAP, $32 million in other one-time solutions,
and other cuts in state spending. The state legislature is currently discussing
the supplemental budget proposal for fiscal 2010 as well as the budget for
fiscal 2011, which begins on July 1. Although the next formal review forecast
will not be published until May 2010, the state reports that revenues through
February 2010 are roughly in line with the November 2009 forecast, a reversal of
recent trends.

Fitch will continue to monitor the state's financial position and overall
economy in light of recent and projected revenue declines. The state's ability
to implement sustainable long-term budget solutions will be a key rating driver,
and Fitch expects that the ability to achieve structural balance will become
increasingly challenging as federal stimulus money is removed from the operating
budget in fiscal 2012.

Rhode Island's debt ratios are on the high end of the moderate range, after
increasing in fiscal 2009 with debt for transportation programs and bonding for
the state's historic structures tax credit liability to provide budget relief.
Net tax-supported debt of approximately $2.2 billion at June 30, 2009 equaled
about 5.1% of personal income, an increase from 4.6% at June 30, 2008. Pension
funding, at 60.9% as of June 30, 2008, is low and the unfunded liability, equals
roughly 10% of personal income (2009). While the state has been successful in
enacting some pension reform in recent years, the ability to address the low
funding will be a significant long-term credit factor.

Applicable criteria available on Fitch's website at www.fitchratings.com
includes:

--'Tax-Supported Rating Criteria', dated Dec. 21, 2009.

--'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28, 2009.

Additional information is available at www.fitchratings.com.

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Fitch Ratings
Alexandra K. Edwards, +1-212-908-9181
Laura Porter, +1-212-908-0575 (New York)
Media Relations:
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