PROVIDENCE – A pitch to borrow more than $500 million to funnel into the city’s pension system now rests with state lawmakers, after receiving the City Council’s backing Thursday.
The council’s 9-1 vote serves as an endorsement and a request to the General Assembly to allow the city to proceed with a $515 million pension obligation bond. The proposal was put forth by a working group of city leaders and community representatives who have concluded it is the best – and only – option to shore up the city’s beleaguered pension system. If issued, the bond would boost the city pension – currently saddled with a 1.3 billion unfunded pension liability – above “critical status” of 60% funded by fiscal 2029 while contributing to its annual payments, which are rising faster than the city revenue, according to the Providence Pension Fund Working Group report.
But first, state legislators must grant the city permission to borrow the money, since state laws typically limit the amount of debt a municipality can take on relative to its assessed property value. Bills were introduced in the General Assembly on Wednesday by Senate Majority Whip Maryellen Goodwin and Rep. Scott Slater, both Providence Democrats, but have not been scheduled for hearings as of Thursday night.
A similar idea floated by Mayor Jorge O. Elorza to borrow an even higher amount – $750 million – stalled in the General Assembly amid criticism over what many described as an overly risky venture that could ultimately worsen the city’s financial situation. While some of those critics, such as Rhode Island Public Expenditure Council CEO and President Michael DiBiase, who is also co-chairman of the pension working group, have been won over by the latest pitch, it’s unclear if state legislators feel the same.
Unlike Elorza’s original proposal, this year’s rendition includes several conditions – many of which are specified in the state bills – intended to address concerns and protect the city from taking on debt it cannot repay.
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 25-year, fixed-interest-rate bond would also include a 10-year par call provision for the city to refinance or pay off debt earlier if rates changed.
Nancy Lavin is a staff writer for PBN. Contact her at Lavin@PBN.com.
Once again the taxpayers are being screwed by the politicians.