PROVIDENCE – A committee of city lawmakers threw their weight behind a proposal to borrow up to $515 million to shore up the city’s underfunded pension system.
The Finance Committee’s 4-0 vote on Thursday serves as a recommendation which will now move to the full City Council for final consideration. Even then, a full council approval does not guarantee that the proposed $515 pension obligation bond is definite. Instead, serves to formally ask the R.I. General Assembly to pass legislation needed to authorize the city to issue the bonds, since state laws limit the amount of debt municipalities can take on relative to their assessed property value.
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The 25-year, fixed-interest-rate bond was recommended last month by a working group of city lawmakers and community representatives, who concluded that borrowing money was the best – and only – option to shore up the city’s $1.3 billion unfunded pension liability and ballooning annual payments, which are rising faster than its yearly revenue. If issued, the bond would boost the city pension above “critical status” of 60% funded by fiscal year 2029, according to the Providence Pension Fund Working Group report.
Major Jorge O. Elorza in 2021 floated a similar idea for an even higher borrowing amount – $750 million – but the proposal stalled in the stalled in the General Assembly amid criticism over what many, framed as an overly risky venture that could ultimately worsen the city’s financial situation.
While pension obligation bonds still pose some risks, reliant on sometimes-volatile capital markets, the low interest rates would allow the city to generate the needed return-on-investment, the working group concluded.
Both the working group’s report and the resolution recommended by the city Finance Committee on Thursday also include conditions intended to protect the city from taking on debt it cannot pay back. For example, the city cannot issue bonds with interest rates above 5%- assuming a 7% rate of return – and must secure voter approval before borrowing.
The city must also continue to pay at least $93 million a year toward its pension through bond payments and an annual actuarial contribution for the first 10 years. Elorza’s prior idea called for gradually decreasing the city’s annual pension payment as soon as the bonds were issued.
The bond would also include a 10-year par call provision for the city to refinance or pay off debt earlier if rates changed.
Legislation had not been introduced in the R.I. General Assembly as of Friday morning, but is expected to be in the next few weeks, said Theresa Agonia, Elorza’s chief of external affairs.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
This is ridiculous. Four idiots are attempting to saddle PVD taxpayers with a $515M POB. They should be voted out of office.
There were no real Muni Finance Pros in the so-called Pension Working Group. Which is like asking your butcher to perform a heart transplant on you.
Any real Muni Finance Pro will tell you that a POB is an idiotic idea (even more so when we are facing several Fed rate hikes) but then again idiotic ideas are par for course for Jorge.
The Members of the PVD City Council Finance Committee who voted in favor of this fiasco should be removed from the Fin Comm immediately since they obviously are clueless wrt proper Muni Finance management. They should also be voted off the Council as soon as possible since they also obviously have no interest in acting in the best interests of the PVD taxpayers.