Providence Officials Obtain Retirement Bond Bond Despite Warning From Government Finance Officials

Tuesday, April 12, 2022

GoLocalProv News Team

Providence Mayor Jorge Elorza and elected officials launch the “Vote Yes on 1” retirement bond campaign on Tuesday morning.

Elorza will join City Council Speaker John Igliozzi (Ward 7), Councilman and Pension Task Force Member Helen Anthony (Ward 2), Providence Representative Scott Slater, Providence Representative David Morales, Representative of Pawtucket Carlos Tobon, Senator of Providence Sam Bell and members of the community to launch the campaign Save Providence: Vote Yes on 1 pension obligation bond (POB).

“Despite significant improvements to the city’s overall finances, the unfunded pension liability still appears to be a ticking time bomb,” Elorza said in February when introducing the legislation at the Rhode Island State House. “Armed with the recommendations of the Pension Task Force, we are committed to finding a long-term solution to the city’s unsustainable annual pension payments. I thank the members of the pension task force for their recommendations, which strengthened the pension obligation proposal, and I thank the co-sponsors of the bill for advocating for the future of our city.

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“There is no doubt that the city must take immediate action to help stabilize our precarious retirement system. The proposed pension bond obligation of up to $515 million, with financial safeguards in place, is a step in the right direction,” said Board Chairman Igliozzi. “To my fellow Statehouse legislators, we respectfully request your assistance in approving this legislation that will provide Providence and its taxpayers with the financial tools necessary for long-term security.”

Experts warn it’s irresponsible

As GoLocal previously reported, local and national municipal finance officers are warning of the dangers of this form of financing.

“Pension obligations carry significant risk, which is why the Government Finance Officers Association recommends that state and local governments exercise caution before authorizing them,” said Gary Sasse, former head of the Rhode Island Public Expenditure Council. and founding director of the Hassenfeld Institute at Bryant University.

“I understand that Providence Pension Bond Bonds [POBs] are proposed because the City does not have a politically viable option. That makes it nothing less than a river bet,” Sasse added.

Even more critical are the guidance from the Government Finance Officers Association (GFOA), which issued an alert recommending that state and local governments not issue POBs for the following reasons:

– The POB proceeds invested may yield no more than the interest rate due over the term of the bonds, resulting in an increase in overall government liabilities.

– POBs are complex instruments that carry considerable risks. POB structures may incorporate the use of collateralized investment contracts, swaps or derivatives, which should be carefully considered as such embedded products may introduce counterparty risk, credit risk and interest rate risk. ‘interest.

– Issuing taxable debt to fund pension plan liabilities increases the jurisdiction’s bond debt burden and potentially depletes debt capacity that could be used for other purposes.

Learn more here.

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