PROVIDENCE – Legislation introduced in both chambers of the General Assembly last week would let the city borrow up to $750 million to shore up its woefully underfunded pension fund.
The companion bills, introduced by Sen. Maryellen Goodwin and Rep. Scott Slater, both Providence Democrats, follow an announcement made by Mayor Jorge O. Elorza earlier this month explaining his plan to use a pension obligation bond to shore up the city’s beleaguered pension fund. The plan requires legislation to bypass state laws that limit the amount of debt municipalities can take on relative to their assessed property value.
At the time of the announcement, Elorza said he hoped to borrow $704 million to invest into the city pension. The bills cap borrowing at $750 million, with the possibility of up to $850 million if the city can secure an interest rate at or below 3.5%.
While Slater and Goodwin expressed support for the plan, other state officials, including legislative leadership and Gov. Daniel J. McKee, have remained tight-lipped on the proposal, various news outlets have reported. Meanwhile, R.I. General Treasurer Seth Magaziner urged caution when discussing the proposal with WPRI-TV CBS 12, noting the mixed track record of pension obligation bonds, including in Woonsocket.
The city’s pension fund is only about 22% funded and faces a $1.2 billion unfunded liability with a $381 million balance as of April. Borrowing money would bring the pension fund up to 65% funding the day the bond closes, reaching 78% by 2033, according to city projections based on the current rate of return. It would also decrease the city’s annual pension payments, beginning by shaving off $10 million from its fiscal 2022 payment.
Each bill has been referred to the respective chamber’s finance committee for consideration. No hearings were scheduled as of Monday.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.