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| WORCESTER’S PENSION OBLIGATION BONDS: HUGE SUCCESS |
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JANUARY 1999 - “We
expect the City of Worcester retirement system to be fully funded by
the beginning of next year (1999),” announced Ray McGrath, an elected
member of that municipality’s retirement board, at the Association’s
Central Mass. meeting in Shrewsbury. These were extremely encouraging
words to the Worcester retirees in attendance.
McGrath was able to exude such optimism because in December, Worcester had successfully sold pension obligation bonds (POBs) that paid off the retirement system’s current unfunded liability. If all goes as planned, $217 million, from the sale of these bonds, will be added to the system’s pension reserve accounts and be managed by that city’s retirement board. As we reported last year (Sept. Voice), Worcester officials had been authorized by the state to issue POBs. When granting authority, the state required the city to obtain approval for the bond sale from the Secretary of Administration & Finance (A&F). In its approval, A & F included a condition that Worcester establish a special reserve as an added precaution against a highly unlikely fiscal catastrophe for the city, making it impossible to pay on the bonds. Worcester officials accepted the condition, agreeing to set aside “savings” from the POBs in a special reserve account. Having that issue resolved, the city was able to proceed with the sale. “We’re extremely pleased with the sale of the POBs and the low (6.31%) rate of interest on the bonds,” according to City Auditor Jim DelSignore who also is a retirement board member. “Worcester has satisfied its unfunded pension obligation and made a substantial savings in meeting that cost (about $53 million at current values).” “While many can be credited, Jim deserves special recognition for his efforts on this issue,” says Association President Ralph White. “He persevered while doubts about POBs continued to be raised and now Worcester retirees are the beneficiaries of the work by Jim and others.” Proponents Push For Quick Action In addition to the law authorizing POBs for Worcester (Chapter 191, Acts ‘98), other communities had bills pending in last year’s legislative session that would have allowed them to do the same. Holyoke and Everett were two such municipalities. With the new legislative session, POB bills have been filed by individual communities and groups. “Mass Municipal (Association) has filed an ‘omnibus’ bill for all cities and towns,” according to MMA lobbyist Dave Baier. “We witnessed an ever-growing interest in POBs by local officials during the course of the ‘98 session.” Now with Worcester’s huge success, POB proponents are pushing hard for quick action on the legislation within the first months of this session. They emphasize that timing is crucial in the POB sale and there is no guarantee that the current favorable bond market, like the one Worcester was able to take advantage of, will continue. |
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