- Associated Press - Monday, April 21, 2014

PROVIDENCE, R.I. (AP) - Rhode Island will face “extremely difficult” budget choices if it loses the court challenges to its pension overhaul, a prominent bond agency warned following the collapse of a proposed settlement.

Moody’s Investors Service called the failed settlement a “credit negative” for the state and municipalities in its weekly credit outlook report last week. The agency said it “prolongs uncertainty over the timing and cost of resolution of this bellwether pension reform” and risks some $400 million in savings annually.

The settlement announced in February by Gov. Lincoln Chafee and Treasurer Gina Raimondo after more than a year of mediation was an attempt to resolve the challenges filed by public-sector unions and retirees. But members of police unions, one of the six groups that had to ratify it, rejected it in mail balloting that ended this month. A subsequent mediation effort ordered by the judge failed.

The litigation is now continuing. A trial has been scheduled for September.

Moody’s cited a broad range of outcomes of a litigated resolution, depending on which side wins in court. But it noted that “an unfavorable court decision will result in extremely difficult budgetary choices and considerable credit pressure.”

Raimondo said last week that losing the case would be financially catastrophic for the state but that she is confident of the outcome.

Moody’s had earlier praised the proposed settlement deal as a “credit positive.” It preserved most of the law’s changes but also provided a modest pension increase for retirees.

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