The downgrade to 'A-' reflects a deterioration of Woonsocket's financial position, coupled with weakened economic indicators. Fiscal 2008 marked the third consecutive general fund deficit, which, together with the use of one-time revenues to balance operating budgets and the statewide limit on annual property tax levy increases, leaves the city with below average financial flexibility and a restricted operating environment; exacerbating poor financial results is an adverse opinion for Woonsocket's fiscal 2007 audit. The revision of the Rating Outlook to Negative reflects concerns over Woonsocket's ability to stabilize its financial position and restore a portion of its unreserved general fund balances. Ongoing contract negotiations with several of the city's unions and other growing fixed cost obligations will likely add budgetary pressure in the coming fiscal years. While the corporate headquarters of CVS is expanding and adds some stability to the local economy, a stark increase in the June 2008 unemployment rate to 9.1% from 5.4% the prior year underscores a softening local economy.

The city expects to end fiscal 2008 with an approximately $1.2 million general fund deficit, its third consecutive shortfall, which would bring the unreserved general fund balance to $800,000, or a low 1.3% of spending. The same measure of liquidity equaled a healthier 8.3% as recently as fiscal 2006, but was likely inflated by certain undesignated fund balances that have since been reclassified as reserved items. Two budgeted land sales that failed to materialize and midyear state aid cuts drove the fiscal 2008 deficit. Officials expect that issues related to the independent auditor's adverse opinion in fiscal 2007 will be resolved in the fiscal 2008 audit report.

Officials plan to restore the fiscal 2008 general fund deficit over a maximum of five fiscal years and budgeted for the replenishment of approximately $500,000 in fiscal 2009. The city has not budgeted for land sale revenues that did not materialize in fiscal years 2007 and 2008, but if received, will reportedly contribute to the general fund balances. The City Police and Fire Employee Pension Plan funded ratio is expected to fall under 100% funded in fiscal 2008 because of poor investment returns. This will likely add budgetary pressure in the coming fiscal years, as the city is required to amortize any shortfalls over five years; the city does not yet have an estimate of the figure.

Woonsocket, a former mill town along the Blackstone River in northeastern Rhode Island, continues its transition to a service- and trade-oriented economy. CVS's expanding corporate headquarters is located in the city and adds some stability to the local economy. However, the city's June 2008 unemployment rate increased to a high 9.1% from 5.4% the prior year, which indicates worsening economic conditions. Per capita money income levels in 2000 (the latest year available) were below-average at 74.8% and 75.2% of the state and national levels, respectively. Debt levels are high at $3,749 per capita and 7.2% of taxable assessed value, including the 2002 GO pension bonds.

Fitch issued an exposure draft on July 31 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').

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