The city of Springfield, Massachusetts is considering borrowing hundreds of millions of dollars to bail out its employee pension plan.
A proposal to issue up to $755 million in pension obligation bonds is being considered by the Springfield City Council as a way to solve the city’s biggest financial challenge – shoring up a public employee pension system that is the most underfunded in the state.
In order to satisfy a requirement to fully fund the pension system by 2040, the city has been increasing its contribution by 9 percent annually for the last few years. But that approach is not sustainable because by 2030 the city would be required to put $200 million into the pension system, which is about equal to all the money raised through property taxes.
That is what makes borrowing an option worth pursuing, said Chief Administration and Finance Officer T.J. Plante.
“Having this opportunity, if it works, puts us in a better position to have budget continuity,” he said.
Explaining the plan to City Councilors at a recent meeting, Plante conceded there are a lot of moving parts. Depending on how high interest rates are pushed by the Federal Reserve in the next few months, it could be too expensive for Springfield to go to the bond market.
A vote by the City Council to authorize issuing the pension obligation bonds does not lock the city into actually borrowing the full $755 million, but it starts the ball rolling in the event the city’s finance team and a group of outside advisors think the bond market is a smart play, said Plante.
“I can tell you if the numbers don’t tie out, we’re not doing it,” he said.
At the special meeting, Council debate was halted after City Councilor Justin Hurst invoked a rule to require a report from the city comptroller.
“There are a ton of unknowns,” Hurst said.
Councilor Tracye Whitfield, who chairs the Finance Committee, said she would not approve of the city taking on such a heavy load of debt.
“This is gambling with the residents of the city of Springfield’s money,” she said.
Voicing support for the bonding was City Councilor Tim Allen, a former Finance Committee chair, who has pushed for the city to close its pension fund gap.
“The pension (fund) is such a challenge for us,” Allen said. “We didn’t create the problem, but we have to fix it.”
In the last 12 years the city’s pension system has gone from 26 percent funded to 35 percent funded.
