PROVIDENCE – A proposal to borrow more than $500 million to fix the city’s beleaguered pension system is gaining traction among city and state lawmakers.
A bill was introduced in the General Assembly on Wednesday allowing the city to issue a $515 million pension obligation bond, according to a release. Companion bills, sponsored by Senate Majority Whip Maryellen Goodwin and Rep. Scott Slater, both Providence Democrats, let the city bypass state laws that otherwise limit the amount of debt it can take on relative to its assessed property value.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
Learn More
Meanwhile, the Providence City Council is slated to endorse the proposed state legislation in a vote scheduled for a city meeting Thursday night, after a prior recommendation by its Finance Committee.
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 General Assembly amid criticism over what many framed as an overly risky venture that could ultimately worsen the city’s financial situation.
At least some prior critics, such as Michael DiBiase, working group co-chairman and president of the R.I. Public Expenditure Council, have been persuaded by this year’s version of the bond proposal, which includes more protections than the prior iteration.
Among them: that the debt service on the 25-year, fixed-interest rate bond as well as does not exceed the city’s annual revenue, based on a 2% growth rate. Also added are provisions that the city continue to increase its annual contribution – Elorza’s prior idea called for gradually decreasing the city’s annual pension payment – and requiring voter approval.
Similar to Elorza’s previous proposal, the bond would also include a 10-year par call provision for the city to refinance or pay off debt earlier if rates changed.
While the working group in its report concluded that borrowing money was the best -and only – option to address the city’s mounting pension crisis, it’s unclear if state legislators will agree.
Slater in an interview on Wednesday said he was “optimistic” for “great support” among fellow legislators given the extensive review by the working group. However, Slater did not know where House Speaker K. Joseph Shekarchi stood on the latest pitch, noting that he had concerns when it was considered last year.
Committee hearings on the state legislation had not been scheduled as of Wednesday. The City Council is scheduled to vote to endorse the state legislation at a meeting at 6 p.m. Thursday.
