Tonight the City Council’s Committee on Finance, Chaired by Majority Whip John J. Igliozzi, Esq. (Ward 7), invited Xaykham Kamsyvoravong, Chairman of the Board of Directors of the Providence Water Board to discuss municipal Asset Transfers as a potential tool to help address the City’s underfunded pension fund.
“Providence is not the only city in the State that is facing serious pension liabilities,” stated Finance Chairman John J. Igliozzi, Esq. “There are 17 other municipalities that have critically underfunded pension plans, and Providence is one of them. It is not only necessary but prudent that we explore all options on the table to mitigate our liabilities and obligations.”
Asset Transfers are a common practice by corporations to help support their unfunded pension liabilities. This practice moves the ownership of a non-cash asset from an entity to its pension fund, allowing the asset’s appraised value to offset unfunded pension liabilities.
Majority Leader Jo-Ann Ryan and Vice-Chairwoman of the Committee on Finance (Ward 5) said, “The City of Providence is facing serious long-term financial challenges, and we need to explore all avenues to address our unfunded pension fund. I want to thank Xaykham Kamsyvoravong for his scholarly paper from his time at Roger Williams Law School, his service to the City of Providence, and for joining us to begin an important discussion.”
Leader Ryan continued, “Clearly, asset transfers are not a silver bullet for state and local governments or pension funds, and there are many challenges that need to be addressed. It is hard to identify assets suitable for this funding mechanism and even more difficult to price and structure them fairly. More importantly, an asset transfer should only be one piece of a well thought out, efficient long-term plan that includes pension reforms. We will be looking for help from our State colleagues to determine if it should be part of our long-term plan. Bottom line – it is an accepted accounting treatment that can positively benefit our balance sheet. It doesn’t solve for the cash flow that is needed to address our financial challenges, but it may be part of the broader solution.”
“This is not a new concept, corporations have used Asset Transfers for decades to leverage the value of their assets,” stated City Council President Sabina Matos. “The Council is looking broadly at our pension obligations, and felt this idea is worthy of further discussion.”
In 2017 the state of New Jersey transferred the New Jersey Lottery to its pensions for a 30-year term, and it offset nearly $13.5 billion of unfunded pension liability. Other states like Connecticut and Illinois are currently exploring this process to mitigate their pension liability as well.
Council President Matos continued, “We have serious financial obligations facing this City – from our schools to infrastructure, to a ballooning pension. Nothing should be off the table, and every idea must be explored and vetted. Asset Transfers are just one area that my leadership team is exploring. This Council is not willing to shirk its duty, and we must be proactive. I applaud the Committee on Finance, and it’s Chairman John Igliozzi and Vice Chairwoman Jo-Ann Ryan for being so willing to explore these difficult scenarios.”