On June 23, State Senator Cynthia Creem and Mayor Marc Laredo’s Chief of Staff, Dana Hanson, spoke before the Joint Committee on Municipalities and Regional Government in favor of Senate Bill 3092, a Home Rule Petition presented by Sen. Creem, which would authorize Newton to issue pension obligation bonds or notes.
Sen. Creem explained that while the City of Newton has made significant progress in reducing its unfunded pension liability, rising pension costs and other fiscal pressures continue to strain the City’s budget. She said the proposal emerged from recent efforts to identify a more sustainable long-term financial strategy. Mayor Laredo had convened a committee to evaluate options, and the group unanimously recommended seeking legislative authorization to issue pension obligation bonds.
Sen. Creem said she is “100 percent in support” of the proposal and is both “pleased and impressed” that Mayor Laredo has “taken a proactive approach” to addressing the City’s pension obligations. She emphasized that the Home Rule Petition would allow the City to pay off the “majority or entirety” of its pension obligation ahead of the 2035 deadline set by the Newton Retirement Board. “The City would be able to smooth out payments on the bond over a longer period of time, which would free up essential funds for Newton schools and essential services,” she said. She added that the proposed approach could provide as much as $10 million in budget flexibility over the next five years.
Chief of Staff Hanson said this proposal emerged from a committee convened by Mayor Marc Laredo and Chief Financial Officer Maureen Lemieux that included representatives from the Law and Treasury Departments, the City Council Finance Committee, the School Committee, and Newton Public Schools administration. Following its review, that committee unanimously recommended that the City seek legislative authority to issue pension obligation bonds.
Senator John Keenan (D-Quincy), the joint committee’s vice chair, expressed support for the proposal while emphasizing that success depends on timing. Keenan noted that Quincy pursued similar legislation and waited nearly twenty years before market conditions made issuing pension obligation bonds advantageous.
“The key is finding the right market conditions to issue the bonds,” Keenan said. He explained that municipalities must compare projected increases in annual pension appropriations with the interest rate on the bonds. When borrowing costs are lower than the anticipated growth in pension payments, issuing the bonds can generate savings. Because favorable conditions may exist only briefly, he said having the authority in place allows municipalities to act quickly when opportunities arise.
Keenan cautioned that achieving 100 percent funding through pension obligation bonds depends on a number of underlying assumptions, including projected staffing levels. He warned that once the bonds are issued, municipalities may feel they have additional budget capacity because the pension appropriation has shifted to the debt side of the ledger. If hiring exceeds the assumptions used to calculate full funding, however, new pension liabilities can develop, causing the system to no longer remain fully funded.
With those cautions in mind, Keenan said pension obligation bonds can be a valuable tool that provides predictability and potential savings when used under the right circumstances. Hanson echoed Sen. Keenan’s characterization of pension obligation bonds as one tool among many, and she noted that the current City administration has sought adjustments in the Retirement Board’s funding schedule to provide additional flexibility and time to evaluate market conditions before deciding whether to issue pension obligation bonds, if legislative approval is granted.