The city of Springfield, Massachusetts has taken an initial step toward borrowing hundreds of millions of dollars to bail out its employee pension fund.
The Springfield City Council voted Monday night to authorize the sale of up to $755 million in pension obligation bonds to bolster its employee retirement system that is the most underfunded of any municipal pension plan in the state.
At the Council’s regular meeting, and at a Finance Committee meeting that preceded it, City Comptroller Patrick Burns presented a report on the proposal.
“What we are looking to do is put an infusion of funds into the retirement system that will then pay down that unfunded liability that we have now that would in turn reduce our yearly appropriation payment and safe the taxpayers money,” explained Burns.
“Is there risk with it? Yes there is,” he said.
The risk is that a sharp downturn in the financial markets where the pension funds are invested would force the city to shovel more cash into the retirement system while at the same time having to pay off the debt on the bonds.
Burns, who also sits on the city’s retirement board, stressed that employee pensions are not at risk. He said a vote by the Council to authorize the sale of the bonds would trigger a due diligence process before any borrowing actually takes place.
“This is a vital step to have the City Council authorize the debt and the next large step in the process is meeting with the Secretary of Administration and Finance for the state of Massachusetts and they will ultimately make the decision if we can move forward,” Burns said.
The Council’s vote was 12-2 with one abstention.
Depending on what happens with interest rates over the next few months, the city’s finance team said it could decide to borrow less than the authorized $755 million or choose not to go to the bond market at all.
The city is required to fully-fund its pension system by 2040. It is currently about 35 percent funded.
Selling bonds to close the gap means the city will not have to devote an increasing share of its budget each year to the pension fund, said City Councilor Jesse Lederman.
“Every dollar we have to put toward the pension obligation is a dollar we can’t spend on paving roads, and improving services, and reducing overall tax burdens,” he said.
City Councilor Justin Hurst, who joined Councilor Tracye Whitfield in voting against the bond authorization, said the prospect of borrowing such a massive sum of money is troublesome to him.
“It would be nice if we could approve less,” Hurst said, adding “I’m not saying I would be in favor of it, but I would be more willing to entertain that scenario than what we have now.”
City Councilor Zaida Govan abstained from the final vote, but did not announce why.
