PROVIDENCE – State leaders have given the capital city the green light to borrow half a billion dollars to pay off its longstanding pension debt.
Gov. Daniel J. McKee on Wednesday signed into law the $515 million pension obligation bond plan, spokeswoman Alana O’Hare confirmed in an email on Thursday.
With the state-enabling law and the necessary voter support from a June 7 special election, all that remains is for the city to actually go ahead and borrow the money. When that will happen is unclear; the city did not immediately return inquiries for comment on Thursday.
One thing is certain, though: Rising interest rates are closing the window of opportunity, since the state law dictates that Providence can only sell its bonds at a maximum 4.9% interest. This was slightly lower than the 5% interest rate cap recommended by the Providence Pension Fund Working Group, which first put forth the $515 million pension obligation bond in a report issued earlier this year.
Other conditions tied to the city’s ability to borrow the money include a 25-year term with a par call provision to allow the city to refinance if interest rates become more favorable, a minimum employee contribution rate to the pension and a requirement that the city put $10 million into a restricted account to fund other post-employment benefits.
City and state lawmakers have backed the borrowing plan as the best – and only – way to make a meaningful dent in the city’s unfunded pension liability, which has swelled to $1.3 billion. Annual payments are also increasing faster than city revenue, threatening to siphon away funds from critical services if nothing else is done, according to the Providence Pension Fund Working Group report.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
