Rep. Slater, Sen. Goodwin, Mayor Elorza, Council President Igliozzi, Partners Announce Introduction of Pension Obligation Bond-Authorizing Legislation
STATE HOUSE – Senate Majority Whip Maryellen Goodwin, House Deputy Majority Leader Scott A. Slater, Mayor Jorge O. Elorza, City Council President John Igliozzi, and partners today announced the introduction of legislation (S-2321, H-7499) before the Rhode Island General Assembly authorizing the City of Providence to issue a 25-year, fixed-rate, Pension Obligation Bond (POB) for an amount not to exceed $515 million.
“After several months studying this topic and educating the public, now is the time to take action to protect the financial health of our capital city,” said Senator Goodwin (D-Dist. 1, Providence). “Together with my colleagues, I know we can address this challenge, protecting Providence's finances and ensuring our civil servants' pension benefits.”
“As was clearly stated in the Pension Working Group report, we can no longer accept inaction,” said Representative Slater (D-Dist. 10, Providence). “We have the recommendations of the Pension Working Group to guide us, and I look forward to continuing to work with Mayor Elorza and my colleagues in the General Assembly to pass this legislation and allow Providence to move forward with a Pension Obligation Bond."
The city’s current unfunded liability is unsustainable and, if unaddressed, will decrease investment in city services and increase costs to taxpayers. According to the Pension Working Group report, issued January 2022, combined, these outcomes erode the city’s – and the state’s – economic competitiveness. Pension Obligation Bonds are bonds issued by a municipality from which the proceeds are used to reduce the accrued unfunded liabilities of its pension system.
The Pension Working Group initially reviewed the impact and efficiency of multiple sizes of POBs – specifically, those that would deposit $700 million, $500 million, and $300 million into the Employee Retiree System (ERS) to determine the most efficient structure to meet three goals: 1) removing the ERS from ‘critical funded status’ – meaning above 60 percent funded, 2) Quickly increasing the funded status of the plan; and 3) aligning growth of ADC expenditures and POB repayments with the projected growth in the city’s revenues, assuming re-amortization.
The Working Group determined that the most efficient transaction was one that matched expenditure growth with revenue growth, while also quickly bringing the ERS out of ‘critical status.’ Currently, the city’s pension expenses are growing at over 5% while revenue is growing at 2%. The $500 million proposal would lower the projected growth of pension expenses to 2%, matching the projected revenue growth and therefore fixing the long-term structural deficit.
“Despite the significant improvements to the city's overall finances, the unfunded pension liability still looms as a ticking time bomb,” said Mayor Elorza. “Armed with the recommendations of the Pension Working Group, we are committed to finding a long-term fix to the city's unsustainable yearly pension payments. I thank the members of the Pension Working Group for their recommendations, which have made the Pension Obligation Bond proposal stronger, and I thank the co-sponsors of the bill for advocating for our city's future.”
“There’s no question the city needs to take immediate action to help stabilize our precarious pension system. The proposed pension obligation bond of up to $515 million, with financial guardrails in place, is a step in the right direction,” said Council President Igliozzi. “To my fellow lawmakers at the statehouse, we now respectfully ask for your help in approving this legislation that will provide Providence and its taxpayers with the financial tools needed for long-term security.”
House sponsors include Representatives Slater, Camille F.J. Vella-Wilkinson (D-Dist. 21, Warwick), Raymond A. Hull (D-Dist. 6, Providence), Gregg M. Amore (D-Dist. 65, East Providence), William W. O’Brien (D-Dist. 54, North Providence), Grace Diaz (D-Dist. 11, Providence), Anastasia P. Williams (D-Dist. 9, Providence), Carlos E. Tobon (D-Dist. 58, Pawtucket), David Morales (D-Dist. 7, Providence), and Carol Hagan-McEntee (D-Dist. 33, Narragansett, South Kingstown).
Senate sponsors include Senators Goodwin, Ana Quezada (D-Dist. 2, Providence), Frank A. Ciccone, III (D-Dist. 7, Providence, North Providence), Tiara Mack (D-Dist. 6, Providence), Samuel W. Bell (D-Dist. 5, Providence), Samuel Zurier (D-Dist. 3, Providence), Jonathon Acosta (D-Dist. 16, Central Falls, Pawtucket), and Sandra Cano (D-Dist. 8, Pawtucket)
“We're proud to have partnered with the city on this essential work to better understand the options available to our city to address the unfunded pension liability. With Providence serving as Rhode Island's economic center, we should all have an interest in addressing this significant liability and protecting the city's financial outlook. We are glad to see our recommendations moving forward in order to protect the best interests of Providence workers, residents and the economy of the city," said Co-chairs of the Pension Working Group Cliff Wood, Executive Director of the Providence Foundation; Laurie White, President of the Greater Providence Chamber of Commerce; and Michael DiBiase, President of Rhode Island Public Expenditure Council (RIPEC).
Without corrective action, the city's large and growing unfunded ERS liability will threaten the retirement security of plan members as well as pushing the city closer to edge of fiscal instability and precluding the ability to provide sufficient services and services.
“The city's fiscal stability is of critical importance to our hard-working union members, and we must take action to ensure that their pension benefits remain intact. We appreciate the dedication and research of the Pension Working Group and look forward to working with Mayor Elorza, Council President Igliozzi, Governor McKee and members of the General Assembly to take action and address this challenge head-on,” said Michael Imondi, President of the Providence Police Union, FOP Lodge #3; Derek Silva, President of the Providence Fire Union, IAFF Local 799; and Ronald Coia, Business Manager, Laborers' Local Union 1033.