City releases projected Pension Obligation Bond annual payment schedule
May 21, 2021
POB Payment Schedule
PROVIDENCE, RI – Mayor Jorge O. Elorza today joined Council President John Igliozzi (Ward 7) Senate Majority Whip Maryellen Goodwin, and House Deputy Majority Leader Rep. Scott A. Slater to announce the introduction of Senate Bill 0927 and House Bill 6356 to 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 $850,000.
“For years, my administration has been managing our finances by budgeting responsibly, finding savings whenever possible, and eliminating redundancy and waste – but we cannot wait a minute longer to right decades of bad decisions and deals,” said Mayor Jorge O. Elorza. “Our residents, employees, and retirees are depending on our swift action. This transaction would put us on a path to addressing our pension liabilities while freeing up tax dollars for much-needed investments that will serve our children and future residents for generations to come. I thank members of our delegation for working swiftly to introduce this legislation on behalf of the City.”
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. By issuing this Pension Obligation Bond under current market conditions, the City would increase the funded level of its Employee Retirement System from 22% to approximately 65%; change the current projected annual payment pattern to a more sustainable and manageable level due to current favorable market conditions, and free up funding to invest in City infrastructure and service. The City would also choose to include a 10-year par call feature on at least a portion of the Bond, providing the City the option to refinance in the future after evaluating the cost.
“The immediate, crucial action the City can take to ensure its long-term financial security and viability is to stabilize the City’s pension system. The proposed pension obligation bond will achieve that goal,” said Council President John J. Igliozzi. “Most important is what a pension obligation bond will mean for the taxpayers of Providence. A lower, predictable actuarially determined contribution (ADC) to the pension system will allow the City to invest in services and quality of life in Providence to support safe, healthy, and thriving neighborhoods for everyone.”
House Bill 6356 sponsors include Representatives Slater, Morales, Williams, Batista, Biah, and Hull. The companion legislation in the Senate, Senate Bill 0927, was introduced by lead sponsor Senate Majority Whip Maryellen Goodwin. The legislation would take effect upon passage.
“The financial health of our City has been in jeopardy for decades and we can’t wait any longer to fix our pension system,” said Senate Majority Whip Maryellen Goodwin. “I look forward to coming together with my colleagues in the General Assembly to seize this unique opportunity to move Providence towards a fiscally sound future.”
“We all need to come together to ensure that Providence can continue to invest in its people,” said Deputy Majority Leader Representative Scott Slater. “Doing nothing is not an option and the City has thoroughly vetted this transaction to make sure this is the right deal at the right time for Providence. I look forward to continuing to work with Mayor Elorza and my colleagues in the General Assembly so that we do not pass up this opportunity to secure the future of our capital city.”
The City also released a potential funding scenario for the City’s Pension Obligation Bond. The scenario is based upon a 7% discount rate, which reflects the projected rate of return on pension investments, phased down to 6.75% over five years, which reflects the projected rate of return on pension investments. The scenario projects a 25-year POB dramatically increasing the funded level of its Employee Retirement System to around 65%.
“This transaction is a once-in-a-generation opportunity to work together and reduce the City’s unfunded liability long-term. The hard-working union members that we represent deserve assurances that their pension benefits will be preserved, and we look forward to working with Mayor Elorza, Council President Igliozzi, and members of the General Assembly to address the City’s long-term financial health,” 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, Local 1033 Business Manager.