In a low turnout special election on Tuesday, 70% of Providence voters approved a $515 million bond proposal meant to help the city’s underfunded pension system, unofficial results show, as supporters called it a necessary step and opponents lamented what they described as a foolish gamble.
With almost 124,000 registered voters in Providence, only 5,070 votes, about 4 percent of the total, were cast in the election.
A wide margin of voters — 3,545 — approved the vote, while 1,519 voted against.
The proposal requires legislative approval. The House of Representatives has already signed off, and the Senate is slated to vote later this week.
Providence’s pension has 23% of the money needed to meet its $1.265 billion in long-term obligations.
The crisis has its roots in the late 1980s, when the city’s Retirement Board approved unusually generous compounded cost of living adjustments for 2,500 workers and retirees. Providence Mayor Jorge Elorza’s proposal for a larger pension obligation bond failed to win legislative approval last year.
Elorza enlisted a range of people and groups in urging support for the smaller $515 million pension obligation bond [POB], including City Council President John Igliozzi, the Greater Providence Chamber of Commerce and the Rhode Island Public Expenditure Council.
Elorza acknowledged some risk, but he called the risk of doing nothing higher, as the amount of Providence’s budget consumed by the pension grows by about five percent each year.
As of last year, the annual pension cost would grow without a change from $93 million to $227 million in 2040.
But as The Public’s Radio reported last year, pension obligation bonds are considered so risky that a national group, the Government Finance Officers Association, declared in 2015 that state and national governments should not use them.
A vote in favor of the bond would not resolve the pension crisis. Rather, Elorza has said, it would give the city time to try to make more progress.
Critics like state GOP National Committeeman Steve Frias, former gubernatorial candidate Ken Block, and the Providence GOP are urging voters to reject the proposed pension obligation bond.
Frias said betting more than a half-billion dollars on the stock market through a pension obligation bond is, in his words, a foolish gamble.
“Essentially, with a POB, you take on another debt to pay off an existing debt, and bet that you will earn more by investing the borrowed money in the stock market than you will pay in interest costs,” Frias wrote in an analysis. “POBs should be avoided. They are high-risk, highly dependent on timing, and can fail miserably.”
Critics say the obligation bond could force the state to rescue Providence from a worsening fiscal disaster.
This story has been updated.
Ian Donnis can be reached at idonnis@ripr.org. Follow him on Twitter @IanDon. Sign up here for his free weekly RI politics newsletter.
