NEWS & CITY LIFE
P e nsi o n P r o posal | By Ian Donnis, Political Reporter for The Public’s Radio
In Partnership with The Public’s Radio • ThePublicsRadio.org
Elorza’s Pension Proposal Relies on a Risky Approach and an Adviser Linked with 38 Studios
Providence’s pension crisis has its roots in the late 1980s. That’s when the city’s Retirement Board approved unusually generous compounded cost of living adjustments for more than 2,500 city workers and retirees. Decades later, that move helps explain why there’s a $1.2 billion gap between the pension balance and the amount owed to current and future retirees. The pension crisis has defied attempted solutions for years. Providence officials say the city has just 22 percent of the money needed to meet its long-term pension obligations. And the amount of the city budget consumed by the pension is growing 5 percent a year, to about $93 million currently. Without a change, that annual payment will rise to $227 million by 2040. Mayor Jorge Elorza said these pension costs are unsustainable. “It’s only a matter of time before they continue to squeeze everything else out of our budget, so that we’re cutting deeper and deeper into the bone,” he said during a recent news conference. Elorza’s plan involves selling $704 million in pension obligation bonds. The idea is that these bonds could generate enough of a return to boost the pension system’s funding to more than 60 percent. “The favorable conditions in the market, historically low interest rates, combined with our improved credit rating, has brought our credit rating to a point where we can take advantage of a very low interest rate for something like this that begins to make it worth it,” Elorza said. But pension obligation bonds are considered risky – so risky that a national group, the Government Finance Officers Association, declared in 2015 that state and local governments should not use them. The concern is how bond proceeds sometimes earn less than
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ProvidenceOnline.com • July 2021
Mayor Elorza speaking with reporters
Photo by Ian Donnis
The underfunded pension system in Providence is like a time bomb. That’s because the huge shortfall for long-term obligations threatens to overwhelm other parts of the city’s budget. But there are a lot of questions about Providence Mayor Jorge Elorza’s latest proposed fix. Rhode Island’s House Finance Committee is expected to hold an initial hearing on Elorza’s plan this week or next week.
