In July of last year, Mayor Elorza convened a working group to review the City’s long-term finances, beginning with a proposal to issue a “pension obligation bond,” which would borrow money to invest in the City’s retirement fund. The Mayor had presented a similar proposal to the General Assembly last spring, as State approval is required because of the large size of the proposed bond (which was then $700 million). The proposal is based on the premise that money can be borrowed at a low interest rate and invested to generate a higher rate of return, thereby helping to address a rapidly escalating pension obligation, which currently is growing at 5% annually at a time when City revenues increase at a 2% annual rate. The working group (on which I served) issued its report last week, which you can read by clicking here: Pension Bond Report. The working group proposed several modifications, including reducing the amount of the bond to $500 million, requiring voter approval (as stated in the Home Rule Charter) and installing certain “guard rails” to reduce risk. The proposal will now be presented to the General Assembly and to Providence voters for review and possible approval. I entered the process as a skeptic, but I came to support the conclusions in the report based upon the improvements just noted, as well as urgency of the City’s needs and the lack of a feasible alternative. If approved, the pension obligation bond would produce a payout schedule that would increase at a sustainable 2% rate, assuming the City can maintain a 7% rate of return on its retirement fund portfolio. As a 2018 City Council working group (on which I served) noted in its 2018 Report, the unfunded pension obligation is our City’s version of the global warming crisis, getting progressively worse the longer we fail to address it. The current report also recommends a robust voter engagement process, as I can say from personal experience that this recommendation is counter-intuitive, and voters will need to see a strong case before agreeing to this proposal. Finally, it is worth noting that even with full approval, the project will not be feasible if interest rates rise too far before the bond is issued. I look forward to Senate hearings on this proposal, as well as the public engagement at the City level, steps that could lead to further improvements to the current proposal.
Last week, the Senate Finance Committee heard further testimony concerning the administration’s planned use of federal funds. I have updated the Budget Documents Page to include the presentation from that night and recent Federal guidance on the Bipartisan Infrastructure Bill. The Senate’s activity is picking up this week as more committees hold hearings. On Tuesday upon the conclusion of the Senate’s 4:00 p.m. regular meeting, the Finance Committee (on which I serve) will continue its review of the budget and the Judiciary Committee will begin its review of the redistricting plan. On Wednesday at 5:30 p.m., the Senate Oversight Committee will review the status of people on waiting lists for vital State social services. If you wish to contribute written or oral testimony, or just wish to watch the hearings on your computer, you can find the information you need by reviewing the Senate’s Committee Calendar by clicking on this link: Committee Calendar, which also will help connect you with Tuesday’s 3:45 p.m. meeting of the Senate Special Legislation Committee, which is reviewing an extension of the declaration of an emergency.
As a reminder, I will be holding a virtual town hall to discuss the Governor’s budget tomorrow (Monday) night at 7:00 p.m. for which many of you have signed up. If you have not yet done so but wish to join, please send me an email.