Providence leaders have a new plan to help pay off the city’s growing pension obligations, but need approval from state lawmakers to do it.
Providence Mayor Jorge Elorza and the City Council are asking state lawmakers to allow the city to issue a more than $704 million bond, to help pay down the city’s outstanding pension obligations.
The bond could fund the city’s pension liabilities to about 65%, allowing the city to meet a 2012 consent decree requirement that the system be 60% funded by 2033.
According to the city’s most recent actuarial report on the pension liability, the system is about 24% funded, compared to about 27% funded the previous year.
That’s despite the city making full payments into the fund for the last nine years. The city is currently on schedule to put $93 million into the fund in the upcoming fiscal year.
“We want to structure this in a way that the expense on the pension side grows at a sustainable rate, and one that is matched by the natural growth of revenue in the city budget,” Providence Mayor Jorge Elorza said during a press conference to drum up support for the plan Thursday.
Without an infusion of cash, officials warn the city’s payments could balloon to unmanageable levels in the coming years.
“The current payment schedule for 2022 is $93.3 million up from $86.7 million the year prior, growing at a rate of 5% per year,” said Larry Mancini, the city’s chief financial officer.
Borrowing $700 million would require the city to get special allowance from the general assembly. Cities and towns are not allowed to borrow beyond three percent of a city’s property tax base. For Providence, that would be close to $400 million, according to Mancini.
Providence City Council President John Igliozzi likened the yearly pension payments to a “horrific mortgage,” and the pension obligation bond as a sort of refinancing. City leaders say the combination of a good municipal bond rating, and low interest rates, makes this a good time to borrow.
The city’s unfunded pension liability has been a persistent issue during the whole of Elorza’s term as mayor. In 2019, Elorza proposed selling the city’s water supply for an infusion of cash into the system. The plan did not move forward, after public outcry and little support from the General Assembly.
Senate Majority Whip Maryellen Goodwin (D-Providence) said Thursday that she supports the proposal, and expects to introduce legislation for the allowance in the coming days.
