Dear neighbor –
MAYOR JORGE O. ELORZA
Ten years ago, the City of Providence saw an existential threat described as a Category 5 fiscal hurricane. The City experienced an extreme cash shortage and risked falling off a fiscal cliff if nothing was done. Today, the City faces a different, yet equally dire predicament.
To help residents and stakeholders understand our current situation, I submitted an op-ed to the Providence Journal and will be holding a series of community conversations; the first of which can be viewed on my Facebook page.
For years, the City has been managing our finances by budgeting responsibly, finding savings whenever possible, and eliminating redundancy and waste, but this approach cannot compensate for decades of bad decisions and deals. We require a bold solution to address this issue.
Our plan would require the City to close on a historic $704 million Pension Obligation Bond (POB) that the City would pay back over the next 25 years. The bond would be invested in our pension system, bringing it out of critical status and up to 65% funded.
The costs of borrowing are currently lower than even modest expected investment returns. We would not wipe away the debt but rather take advantage of current conditions to save money down the road, like refinancing an unfavorable home mortgage.
The City would also choose to include a 10-year par call feature on a portion of the Bond, providing the City the option to refinance in the future after evaluating the cost. This plan is conservative and well thought out, although we are only able to take advantage of this opportunity for a short period of time.
Members of the City Council, Providence’s delegation to the General Assembly, and City Union leaders agree that this is the best financial decision for the City.
We need to continue taking a holistic view of the pension system and look for more ways to support the financial health of our City and its residents. We must create a sustainable pension payment system for our residents that will serve Rhode Island’s children and future residents for generations to come.
Providence has a once-in-a-lifetime opportunity to address the biggest financial problem facing the state today – but we must act now.
Sincerely,
Jorge O. Elorza