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Springfield finance officials decide now is not the right time to sell pension obligation bonds

Springfield City Hall
Paul Tuthill
/
WAMC
The biggest financial challenge facing Springfield City Hall is the massive unfunded liability in the retirement system.

Proposal was floated as a way to reduce a large unfunded liability in the retirement system

Finance officials with the city of Springfield, Massachusetts have decided not to borrow millions of dollars to bail out the city’s pension fund.

Just a month after the Springfield City Council voted to authorize the sale of $755 million in pension obligation bonds, the plan has been shelved.

Springfield City Councilor Tim Allen, a member of a City Hall working group on the city’s pension fund, provided colleagues this week with an update.

“The pension bond project itself is dormant at this point because the economic conditions are not favorable for that at this point,” Allen said.

Selling pension obligation bonds was discussed as a possible solution to Springfield’s biggest financial challenge – shoring up its employee retirement system that is the most underfunded in the state.

“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,” said City Comptroller Patrick Burns in a report to Councilors in May.

“Is there risk with it? Yes, there is,” Burns said.

A sharp downtown in the stock market, where the pension funds are invested, and rising interest rates could make the sale of bonds too risky.

Springfield’s Chief Administration and Finance Officer T.J. Plante assured Councilors that the city would not go to the bond market if the city’s finance team and a group of outside advisors don’t think it’s a smart play.

“I can tell you if the numbers don’t tie out, we’re not doing it,” Plante told Councilors in April.

The Council’s vote to authorize the bond sale allowed the City Hall working group to perform due diligence that will make it easier to revisit the proposal when economic conditions change, said Councilor Allen.

“So the pension bond vote we took at the time was a good vote,” Allen said. “It allowed for a lot of work to get done and when the economic situation is favorable in the future we will be able to pick up and benefit from a lot of the work that was done.”

For now, the city will have to continue to make ever-increasing payments into the pension system from the annual budget in order to have it fully-funded by 2040. There is a cost to that approach, said City Council President 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,” Lederman said.

With the increased contributions from the city and a rising stock market over the last 12 years, the city’s pension fund has gone from 26 percent funded to 35 percent.

City officials have repeatedly stressed that individual employee pensions are not at risk.

The record-setting tenure of Springfield Mayor Domenic Sarno. The 2011 tornado and its recovery that remade the largest city in Western Massachusetts. The fallout from the deadly COVID outbreak at the Holyoke Soldiers Home. Those are just a few of the thousands and thousands of stories WAMC’s Pioneer Valley Bureau Chief Paul Tuthill has covered for WAMC in his nearly 17 years with the station.