PROVIDENCE – The clock is ticking down on the General Assembly’s 2021 legislative session, but city officials are still trying to get lawmakers’ support for a proposal to borrow money to shore up Providence’s struggling pension fund.
Legislation introduced by Rep. Scott Slater, D-Providence, authorizing the city to borrow up to $750 million to invest in its pension fund was scheduled to be heard by the House Committee on Finance Thursday, but was pulled from the agenda at Slater’s request. The 25-year, fixed interest-rate pension obligation bond requires legislation to bypass state laws that limit the amount of debt municipalities can take on relative to their assessed property value.
Building a Stronger Heart: Inside South County Health’s Cardiopulmonary Rehab Program
A Heart-Healthy Start to the Year February is American Heart Month—a time to raise awareness…
Learn More
Slater told Providence Business News on Friday that the hearing was postponed because he wanted to ensure all relevant city employees and outside consultants were available to present and answer questions at the rescheduled public hearing, particularly about their financial forecasts for a ballooning annual pension payment and how the pension obligation bond could offset this insurmountable sum.
Slater and Sen. Maryellen Goodwin, also a Providence Democrat and sponsor of companion legislation in the Senate, have already pledged their support for the proposal, which was first announced by Providence Mayor Jorge O. Elorza earlier this month. But where other lawmakers, including House and Senate leadership, as well as Gov. Daniel J. McKee, stand is unclear.
Slater said the hearing will likely be rescheduled to the second week of June, timing that could jeopardize the bill’s chances of passing with the assembly nearing the end of this year’s legislative session, which typically wraps up by June 30. Instead, he hopes more time to build consensus around the proposal would help, not hurt, its chances.
“A lot of work can be done behind the scenes before the actual committee hearing,” he said.
Meanwhile, city leadership is standing by the proposal, and has scheduled a virtual community conversation on the bond for June 1, according to city spokeswoman Theresa Agonia.
Proponents have billed the bond as a creative solution to help stabilize the city’s woefully underfunded pension system – currently saddled with a $1.2 billion unfunded liability and escalating annual payments that, according to city projections, would hit $227 million by 2040.
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.
The proposal comes two years after Elorza’s unsuccessful pitch to sell the city water supply to support its struggling pension fund. Since then, the situation has become more dire with a 2020 state Supreme Court decision ruling out any attempts to renegotiate the terms of a prior settlement with retires.
Slater acknowledges that pension obligation bonds are controversial, referencing a botched bond in Woonsocket that ultimately left the city with more debt on top of a still-underfunded pension. But in his eyes, the only alternative is even more grim: a city forced into bankruptcy and a court-appointed receivership with consequences not only for Providence but the entire state.
“I don’t think anyone in the state wants to see the capital city go bankrupt,” he said, adding that state bond ratings could also suffer if this happened.
The city meeting is scheduled for 5 p.m. on June 1. As of Friday morning, committee hearings on the bills from Slater and Goodwin had not been scheduled.
