Debate heats up ahead of Providence vote on pension obligation

A special election in Providence on Tuesday will decide the fate of a $515 million bond proposal to help the city’s underfunded retirement system, as supporters and opponents debate the merits of the proposal.

Providence’s pension has 23% of the cash needed to meet its $1.265 billion in long-term obligations.

The crisis has its roots in the late 1980s, when the city’s Board of Pensions approved unusually generous cost-of-living adjustments for 2,500 workers and retirees. Providence Mayor Jorge Elorza’s proposal for a larger pension obligation failed to gain legislative approval last year.

Now Elorza has enlisted a range of people and groups to urge support for the smallest $515 million pension bond bond. [POB]including City Council Speaker John Igliozzi, the Greater Providence Chamber of Commerce, and the Rhode Island Board of Public Expenditures.

Elorza recognizes some risk, but he calls the risk of doing nothing higher, because the amount of Providence’s budget consumed by the pension increases by about five percent each year.

Since last year, the annual cost of pensions would increase unchanged, from $93 million to $227 million in 2040.

But as The Public’s Radio reported last year, pension bonds are considered so risky that a national group, the Government Finance Officers Association, said in 2015 that state and national governments should not utilize.

A vote in favor of the bond would not solve the pension crisis. On the contrary, Elorza said it would give the city time to try to make more progress.

Critics like state GOP national committee member Steve Frias, former gubernatorial candidate Ken Block and the Providence GOP are urging voters to reject the proposed pension bond.

Frias said betting more than half a billion dollars on the stock market through a pension bond is, in his own words, a foolish gamble.

“Essentially, with a POB, you take on more debt to pay off existing debt, and bet you’ll earn more by investing the borrowed money in the stock market than you’ll pay in interest charges,” Frias wrote in an analysis. “POBs should be avoided. They are high risk, highly timing dependent, and can fail miserably.

Critics say the bond could force the state to save Providence from a worsening fiscal disaster.

Ian Donnis can be contacted at [email protected] Follow him on Twitter @IanDon. Register here for his free weekly RI political newsletter.

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