On Monday night, Mayor Marc Laredo and Chief Financial Officer Maureen Lemieux presented a cautiously optimistic financial report and forecast for Newton for the next few years.
But one of the mayor’s major moves–a bond to pay off the city’s pension liability–has been paused by the realities of a volatile market.
The City Council voted unanimously in April to allow the mayor to request state approval to take out a bond for the pension liability, which Laredo said “could provide flexibility in our operating budget while ensuring long-term pension stability.”
And State Sen. Cindy Creem, along with State Rep. Amy Sangiolo, are working on getting that approval. Once that comes through, the City Council will have to vote again to approve the bond.
But don’t expect a green light to shine from Beacon Hill just yet, thanks to persistently high interest rates and economic uncertainty.
“Even if we were to find out tomorrow that we have the authorization to move forward with our pension obligation bond, unfortunately, the current market is such that a pension obligation bond is not viable at this point in time,” Lemieux said.
The bond is taxable, Lemieux explained, so the city would have to add between a point and a point-and-a-half to the original amount, meaning the city would be paying at least 5.5 percent on a pension liability bond. The math doesn’t work out given current interest rates and other market conditions.
“After we get the enabling legislation, we still need approval from the secretary of administration and finance at the state level,” Lemieux said. “They would not give us approval at this point in time. However, we are cautiously optimistic that within the next couple of years there will be a time when a pension bond makes sense, and so in the meantime, we still have a tremendous amount of work to do.”
Pension liability has plagued cities and towns across Massachusetts for years, and Newton is no exception. A state law mandates full liability payment by 2040, after which Newton would see millions of dollars free up in its operating budget (money that is now being put toward the pension liability).
The city had moved the payoff date to 2030 to get it done faster and free up money sooner. But after inflation hobbled the city’s budgets in the middle of a teacher contract negotiation that was snowballing into a strike, Mayor Ruthanne Fuller requested the payoff be moved to 2032.
Earlier this year, the Laredo administration went to the Retirement Board and got them to move the repayment date to 2035 with a cost-of-living increase for retirees.
“This adjustment has proven to be quite beneficial,” Laredo said Monday night. “It provided roughly $5 million in budget relief, helping us fund our ongoing pension obligations responsibly, but also gave us the flexibility to wait to issue pension obligation bonds until the time is right to do so.”
Lemieux said that once the legislature authorizes a bond, the city will work with financial advisors to get everything ready.
You can watch the entire presentation on NewTV.