Senate signs off on Providence pension bond proposal

Update: 3:55

THE RI SENATE on Tuesday approved state-enabling legislation for Providence's proposed $515 million pension obligation bond. PBN FILE PHOTO/ARTISTIC IMAGES

PROVIDENCE – The capital city’s pitch to borrow half a billion dollars to pay down its unfunded pension liability could soon become reality, with the Senate approving state-enabling legislation on Tuesday.

The Senate’s passage by a 31-5 vote follows a June 1 approval by the House on the proposed $515 pension obligation bond, which requires the blessing of state lawmakers to bypass state laws around municipal debt limits.

Providence voters have also backed the plan under a June 8 special election, with about 70% of those who voted saying ‘yes’ on the single-question ballot referendum.

All that’s left for Providence to see its plan become a reality is a signature from Gov. Daniel J. McKee. 

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McKee’s support for the legislation is still unclear, and he plans to review the legislation when it reaches his desk, Alana O’Hare, a spokesman for the governor, said in an email on Wednesday.

And with interest rates rising, the window of opportunity is ticking down. The city can only borrow at a maximum 4.9% interest rate, per the provisions of the state legislation.

The legislation also incorporates other stipulations aimed at protecting the city against the risks often associated with these types of borrowing plans, based largely on recommendations of the Providence Pension Fund Working Group that first put forth the pension bond plan.

These 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.

Proponents of the borrowing plan say it is 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.

(Update: Comment from McKee added in 5th paragraph)

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

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1 COMMENT

  1. Our so-called democracy has drastically failed us, when less than 4,000 voters can commit 120,000 “voters” to assume $515 million in needless public debt. The self serving politicians who saddled us with this debt should be driven from office immediately.