PROVIDENCE, R.I. (WPRI) — Providence lawmakers have formally introduced a bill that would let the city borrow hundreds of millions of dollars in an effort to shore up its underwater pension system, one week after Mayor Jorge Elorza announced the proposal.
Elorza is seeking to float a type of debt called a pension-obligation bond, borrowing money from investors that would be put into the pension system to cover benefits for retirees and earn investment returns.
Such transactions have a checkered history, including in Rhode Island, but the mayor argues it is the best way for Providence to quickly improve the system’s funding. The most recent actuarial valuation shows the city had only $380 million in assets amassed as of last June to cover $1.6 billion in benefits — a shortfall of $1.2 billion.
The six-page House bill introduced Thursday would authorize Providence to borrow up to $750 million for the pension fund, with the authorization automatically increasing to $850 million if the city can secure an interest rate of 3.5% or less. Both figures represent more than the $704 million figure that Elorza cited last week.
The borrowed money could be contributed to the pension fund, placed in a newly established reserve fund, or put toward “payment of costs in connection with the issuance of the bonds,” according to the text of the bill. It would be invested by the Providence Board of Investment Commissioners, with assistance from “a nationally recognized pension investment advisor.”
There is no requirement in the bill for Providence voters to approve the borrowing in a referendum.
Hearings on the bill have not yet been announced, with the General Assembly just weeks away from when it typically wraps up its annual session.
The bill’s lead sponsors are Senate Majority Whip Maryellen Goodwin and state Rep. Scott Slater, both Providence Democrats who joined Elorza for the news conference announcing the plan. (The Senate version of the legislation was not yet on the General Assembly website as of late Thursday.)
“This legislation is a potential opportunity to finally address and correct Providence’s pension deficit,” Goodwin said in a statement. “We are just beginning the process in the General Assembly. Of course, the devil is in the details, and we will review the bill thoroughly on its merits.”
Slater urged his colleagues not to “pass up this opportunity to secure the future of our capital city.”
“We all need to come together to ensure that Providence can continue to invest in its people,” Slater said. “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.”
Gov. Dan McKee and House Speaker Joe Shekarchi have been noncommittal about the pension proposal, while Senate President Dominick Ruggerio has deferred to Goodwin, the No. 3 member of his leadership team.
Others have expressed wariness about having the city commit itself to so much borrowing when its future investment returns on the money are not guaranteed.
“I’d say we’ve got to be cautious here,” General Treasurer Seth Magaziner said on last week’s taping of Newsmakers. “It’s a strategy that’s viewed by many people as risky. It has a mixed track record. But I want to keep an open mind until I actually see the details of the plan.”
Magaziner did agree, however, about the seriousness of the issue. “The Providence pension is the biggest financial problem that the state of Rhode Island faces,” he said.
Ted Nesi (firstname.lastname@example.org) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter and Facebook