PROVIDENCE - Fewer than 3,600 city voters on Tuesday backed Mayor Jorge Elorza’s proposal to borrow $515 million to shore up Providence’s ailing pension fund, according to unofficial results from the Board of Canvassers.
But even fewer voted against the bond.
In a special election that saw just 4 percent of the Providence’s 124,000 registered voters participate, the $515 million pension obligation bond won approval by a wide margin, with 70 percent supporting the proposal.
The plan still needs to be approved by the state Senate, but Tuesday’s vote dramatically increased the likelihood that Providence will be allowed to borrow $515 million and deposit the proceeds into the retirement system to invest.
Elorza has said the infusion of cash from the bond will allow the city to stabilize its pension fund, which has just 26 percent of the $1.6 billion it needs to pay current and future retirees over the next several decades, according to the city’s financial records.
The bond was backed by Elorza, most of the Providence City Council, all three of the current candidates for mayor, and state Treasurer Seth Magaziner, but even supporters acknowledge that it comes with some risks.
The proposal calls for the city to borrow at an interest rate no higher than 4.9 percent, and officials like Elorza maintained the bond will be successful as long as the retirement system posts an annual investment return that is larger than the interest rate – the average return since 1996 is around 7 percent.
The bond won approval despite a late push from the city’s Republican Party, which painted the proposal as a dangerous gamble that could bankrupt the city if the stock market struggles over the next several years.
City leaders argued that the bond is necessary because Providence has few options when it comes to addressing its troubled pension system, and its annual taxpayer-funded contribution to the system – $96 million in the current fiscal year – is growing at 3.5 percent each year.
A Rhode Island Supreme Court decision in 2020 limits the city’s ability to reduce benefits for employees and retirees who are part of any previous settlement with the city. That includes anyone who agreed to pension changes under former Mayor Angel Taveras a decade ago.
Elorza first proposed the bond last year – he was seeking $700 million at the time – but state lawmakers balked at the plan. The revamped version of the bill includes less money, the voter approval requirement, and enhanced safeguards designed to limit the risk.