PROVIDENCE, R.I. (WPRI) — Providence Mayor Jorge Elorza will once again ask state lawmakers to approve hundreds of millions of dollars in borrowing to rescue the city’s ailing pension fund, but this time with a smaller price tag and a plan to ask city voters for their approval.

The proposal, supported by both Elorza and City Council President John Igliozzi, calls for a $500 million pension obligation bond to help shore up the massively underfunded pension system. Elorza had previously asked lawmakers to approve a bond totaling more than $700 million.

The new plan, approved by the Providence Pension Working Group on Monday, also differs from the original because it would ask city voters to approve the borrowing. Elorza said it’s possible the city would hold a special referendum election soon — rather than waiting until November.

“We need to strategize on when we would hold the referendum,” Elorza told reporters in a Zoom call. He didn’t rule out going to the voters for approval prior to approval by the General Assembly.

Elorza said new legislation would likely be introduced in the next week in the General Assembly by members of the Providence delegation. Last year’s version of the bill was introduced near the end of the session and did not get a vote.

The working group’s 21-page report offers a stark assessment of Providence’s pension problems, warning that the city has one of “the lowest funded pension plans in the nation.” The city’s pension liabilities total $8,518 per resident, with $6,629 of that amount unfunded.

“At the end of the day, if Providence cannot maintain stability, it has an impact throughout the entire state,” Igliozzi said.

City leaders believe the pension obligation bond makes sense now because of low interest rates, betting that the return on investment in the pension fund will exceed the interest payments on the debt. The city currently assumes a 7% rate of return for the pension.

The new proposal assumes the 25-year, fixed-rate bond will have an interest rate no higher than 4.39%, and likely lower based on the current climate.

The pension fund currently has $396 million in it, with a $1.2 billion unfunded liability, a result of decades-old agreements that gave retirees generous annual increases without the corresponding funds being deposited in the pension fund. That gives the system a funding level of just 22%.

The city now puts its full actuarially determined contribution, or ADC, into the pension fund each year. This year the payment is $93 million, but it’s expected to grow to $120 million by 2026, which would be more than 20% of the city’s budget.

Elorza said the annual payment is expected to grow by 5% a year, faster than the city’s revenue can keep up, which means it will eventually be difficult to fund other areas of the city budget because of the payment to the pension.

He said the $500 million bond would allow the city’s annual pension payment to grow at a rate of 2%, the same rate as city revenue is projected to increase.

The pension working group considered several other options, according to a report released Monday, including bankruptcy or renegotiating with retirees.

But the group said bankruptcy is not an option for a city that can currently pay its bills. And while negotiating with retirees is possible, a recent R.I. Supreme Court decision overturned prior pension reform efforts, making it unlikely the city can get concessions from that group, according to the report.

Elorza previously proposed selling or leasing the city’s water supply, but the idea never gained widespread support. Monetizing the water supply also would have required General Assembly approval.

“There really aren’t options that we have at our disposal at scale that’ll help to address the challenge that we have,” Elorza said. “We’re working with very limited options.”

He said bankruptcy would not be an option “for a very long time.”

“And the pain that would be required before we get into bankruptcy would be enormous, so much so that we all want to avoid it,” Elorza said.

The group also considered whether to borrow the higher $700 million amount, or a smaller amount such as $300 million. The report says the $700 million would get the pension fund out of “critical status” sooner, but would rely the most on market timing because of the massive infusion of cash all at once. The $300 million amount would take longer to get the fund out of critical status, and wouldn’t allow the annual pension payment to decrease as much.

The working group’s report also warned that the billion-dollar hole in the pension system is not Providence’s only retiree-related financial concern, pointing out that the city has a separate unfunded liability for retiree health benefits estimated at roughly $1.1 billion — which puts the combined unfunded liability for both sets of benefits at well over $2 billion.

The report said city officials should also take steps to begin saving money to cover retiree health benefits, and look for ways to lower medical-related costs, as part of its financial stability efforts.

The working group’s members included Elorza, Providence Foundation Executive Director Cliff Wood, Greater Providence Chamber of Commerce President Laurie White, Rhode Island Public Expenditure Council President Michael DiBiase, Rico Vota (designee for Gov. Dan McKee), state Rep. Camille Vella-Wilkinson (designee for House Speaker Joe Shekarchi), Senate Fiscal Adviser Steve Whitney (designee for Senate President Dominick Ruggerio), City Councilors Pedro Espinal and Helen Anthony, financial advisors Mackey McCleary and Kristin Fraser, and state Sen. Sam Zurier.

Elorza emphasized that the participation of representatives for the governor and legislative leaders in developing the $500 million bond proposal is not an endorsement of the idea on their part.

“It is premature for them to comment until a bill is introduced,” said Larry Berman and Greg Pare, spokesmen for Shekarchi and Ruggerio. “Once it is, the legislation will go through the normal public hearing process in the respective House and Senate Finance Committees.”

McKee’s spokesperson Matt Sheaff also said the governor’s designee on the panel was “strictly an observer and did not participate in the drafting of the report.” He said the governor is reviewing the report.

DiBiase acknowledged that RIPEC, a business-backed think tank, continues to have concerns about the potential downsides of a pension obligation bond, but said that was balanced by concerns about Providence’s long-term financial stability. “From my point of view, it’s worth the risk,” DiBiase said.

Steph Machado (smachado@wpri.com) is a Target 12 investigative reporter covering Providence, politics and more for 12 News. Connect with her on Twitter and on Facebook.