Mayoral candidates assess plan to resolve pension crisis
The mayoral candidates who chimed in on Mayor Jorge Elorza proposed solution to the pension crisis all used the same word: risk.
This is perhaps the biggest sticking point for those wondering whether to back Elorza’s plan for $500 million. pension obligation to reduce the city’s unfunded liability by more than $1.2 billion.
The Providence Journal spoke to three of the four candidates shortly after the city announced it would seek General Assembly and voter approval – in the form of a referendum – before the end of the term. from Elorza.
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Michel Salomon, who called for pension reform more than a decade ago, when he was city council president, took no firm stance on the link but warned the city could risk sinking into a deeper hole.
Two variables are involved: interest rates and investment market conditions. Earlier in the pandemic, when Elorza offered a even bigger link, interest rates were consistently low and the outlook for investment was relatively strong. With the Federal Reserve all but certain to start raising rates in March — a move that would influence the bond’s rate — the city’s chance of grabbing a low rate could dwindle, and the investment outlook is volatile.
“If we lose money in the market and we have a downside in the market, we’re still obligated to pay those bonds, which can be a burden on the city,” Solomon said.
It would be easier if Providence had a crystal ball.
“If you could foresee the future, that’s one thing,” Solomon said. “But if you can’t predict the future, it’s a gamble. That’s what worries me. It could be a home run or a flop. Do we want to take this chance?
Overall, Solomon suggested the city keep making the payments as they are and reassess the situation later, maybe in 10 years. However, by 2032, annual payments are expected to exceed $160 million, an increase of nearly 60% from today.
Brett Smiley, adviser to former mayors David Cicilline and Angel Taveras and then chief of staff and chief administrative officer to former Governor Gina Raimondo, appears to oppose the ‘wait and see’ approach, likening crisis to change climatic.
“It seems like until someone’s lawn is under water, people aren’t ready to do anything,” he said. “And that’s kind of the challenge we have as a city with this pension fund is that it’s definitely an issue that needs to be addressed, but the most severe pain is not being felt today. But the sooner we do something about it, the less dramatic the solution needs to be.
Like Solomon, Smiley did not take a position for or against the link. No candidate did. But again, risk was on the mind.
“An interest rate environment has made this solution less favorable than it might have been a year ago, but it has the potential to still be advantageous,” Smiley said. “And city and state leaders, who must approve this, should put in place appropriate safeguards to ensure that if interest rates continue to rise and this potential window of opportunity closes, we’re not going headfirst into another kind of financial calamity.
Smiley encouraged the city to continue negotiating pension contracts and benefit structures, and urged leaders to consider allowing Providence to join the state pension system “to save on contract costs, fees for counsel, lawyers, bankers, etc.”.
Asked about this option at a press conference last week, Lawrence Mancini, the city’s chief financial officer, called it “almost as bad if not worse” than the status quo, noting that the idea had been considered there. several years ago, but would not. were a solution for unfunded liabilities.
Gonzalo Cuervo, former chief of staff to Secretary of State Nellie Gorbea, stressed that the city should not be rushed into a bond by market conditions, saying that if interest rates rise too high, the idea of obligation should be rejected.
“The stock market can be volatile and we can end up with two sets of debt,” he said. “And that’s something that needs to be debated publicly and enthusiastically before anyone makes a decision, because people are going to be stuck for 20 or 25 years on bail, and it’s not like we have any the extra money in the first place.”
Cuervo said he would need to know more about the proposal before backing it.
Among the city’s alternatives, he believes, is increasing its tax base by spurring development. Currently, the city’s pension contributions are increasing at 5% per year, against a revenue growth rate of 2%. The bond, if issued, would aim to reduce payment growth, bringing it in line with revenue growth.
Councilwoman Nirva LaFortune, who represents Ward 3, does not yet have a response to the bond proposal.
LaFortune’s campaign communications director Alisha Pina told the Journal that comment on the plan would be premature. Pina said LaFortune is “reviewing the report carefully.”