Mayor Elorza, City Stakeholders, Experts to Develop Long-Term Pension Recommendations
PROVIDENCE, RI – Mayor Jorge O. Elorza today joined Providence City Council President John Igliozzi (ward 7), Providence Foundation Executive Director Cliff Wood, Greater Providence Chamber of Commerce President Laurie White, Rhode Island Public Expenditure Council (RIPEC) President and CEO Michael DiBiase to announce a pension working group to consider and recommend a comprehensive proposal to address Providence’s structural financial challenges, including the risks and benefits of a Pension Obligation Bond and any additional avenues for structural reform.
“Since 2015, my administration has been managing our finances by budgeting responsibly, finding savings whenever possible, and eliminating redundancy and waste – but we cannot wait any longer to right the bad decisions and deals of the past,” said Mayor Jorge O. Elorza. “We have to address our long-term structural challenges, or else our city and state will be continually weighed down. I look forward to leading this pension working group alongside the Providence Foundation, Greater Providence Chamber of Commerce, and RIPEC to address Providence’s structural financial challenges, and subsequently working with members of the general assembly on a comprehensive solution.”
Appointees for the Pension Working Group include:
- Providence Mayor Jorge O. Elorza
- Providence Foundation Executive Director Cliff Wood
- Greater Providence Chamber of Commerce President Laurie White
- Rhode Island Public Expenditure Council President (RIPEC) and CEO Michael DiBiase
- Governor Daniel J. McKee or his designee
- Speaker of the House K. Joseph Shekarchi or his designee
- President of the Senate Dominick J. Ruggerio or his designee
- Two members of the Providence City Council, selected by Council President Igliozzi
- Mackey McCleary, financial advisor
- Kristin Fraser, financial advisor
- Financial advisor TBD
“The pension crisis has loomed over our city as the unfunded liability has grown over the decades. The Council has adopted several pension reform bills that have allowed the City to rein in costs, however, the City’s actuarily determined contribution to the pension fund continues to increase,” said Council President John J. Igliozzi. “We need a comprehensive review and recommendations from knowledgeable individuals, including experts in the field, to determine the best options for Providence to mitigate this issue in a realistic and responsible way. During my many years serving as the Chairman of the Committee on Finance, and now in my role as Council President, I have prioritized collaboration with state and local leaders to construct pragmatic solutions to the pension crisis. I believe that the Pension Working Group is an important next step in developing a sustainable pension fund for the long-term.”
“Our membership has made assisting the city in finding smart solutions to our pension crisis a top priority,” said Cliff Wood, Executive Director of the Providence Foundation. “We are happy to work with the mayor, the council and this group of business and community members to dive deep and find real, long-term solutions to better our fiscal health. This is critical to Providence workers, Providence residents and the economy of the city as a whole.”
The pension working group will prioritize discussing the risks and benefits of a POB before an expected return of the General Assembly in the fall. Additionally, the group will consider and recommend a comprehensive proposal to address Providence’s structural financial challenges and any potential avenues for structural reform. Members of the Pension Working Group will meet bi-weekly for the next two months. Presentation and meetings will be hosted virtually on Zoom and members of the public will be able to attend. The first meeting will be held tomorrow, July 27 at 12:15PM via Zoom. Meeting information will be posted on the City’s Pension Working Group website.
“Providence’s long term financial health represents the most critical fiscal priority for not only the City, but for the State of Rhode Island,” said RIPEC President and CEO Michael DiBiase. “RIPEC has long been dedicated to fiscally responsible government and is very pleased to be engaged in this effort to develop and support recommendations to respond to these challenges.”
Although the City has made 100% pension payments for the last 10 fiscal years, payments have steadily risen by an average of nearly 5% per year, outpacing the growth of the City’s tax base. The City’s recently adopted FY22 Budget allocated $93,585,060 to the pension fund. Despite these actions, the City’s current unfunded liability totaled $1.265 billion (22.17% funded) as of June 2020. According to the most recent actuarial report, the City’s current payment schedule is forecasted to surpass $200 million in less than 20 years and peak at $227 million in FY2040.
“Unfunded pension liabilities in the capital city should be of concern to all Rhode Islanders,” said Laurie White, President of the Greater Providence Chamber of Commerce. “Providence has an outsized influence on the rest of the state and most certainly has the potential to drag down Rhode Island’s overall economic performance. Employment growth, population growth and business growth are influenced by city’s fragile underpinnings. We remain concerned about protecting the tax base for the long term.”
Earlier this year, Senators Goodwin, Bell, Quezada and Mack introduced Senate Bill 0927 and Representatives Slater, Morales, Williams, Batista, Biah, Hull and Diaz introduced 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 $850,000,000. 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.
Under Rhode Island law, the City may not acquire any debt, unless otherwise excepted by law, greater than 3% of the assessed value of taxable property without legislative approval. Authorizing legislation by the General Assembly regarding the Pension Obligation Bond would not be included in the City’s 3% debt limit.
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