Norwich referendum question asks voters to bond $145 million pension debt
Norwich — Voters’ initial reaction might be sticker shock when they see the Nov. 2 referendum question that asks if they approve bonding $145 million to cover the city’s unfunded pension debt.
But city government, finance and pension officials hope voters understand that the proposal would save an estimated $43 million over the 30-year bond period, and the move would not increase the city’s debt.
City Manager John Salomone compared the plan to a family refinancing a home mortgage loan at historically low interest rates. Instead of a mortgage, the city would finance its pension obligation debt, replacing the annual obligation payments with annual bond debt payments, plus pension contributions for current employees.
This year, the city budgeted $13.7 million, including a portion of the unfunded debt and the contribution toward active employees’ pensions.
After calculating many possible scenarios, bond consultants estimated the city should average $1 million or more in annual savings, $43 million over the 30-year life of the bond.
City Treasurer Michael Gualtieri, a retired 30-year banker, including 20 years as manager of consumer lending at Chelsea Groton Bank, said the city would bond interest rates at the current historically low bond rates, invest the bond proceeds at higher interest-earning yields and lower the city’s annual pension payment.
The plan was presented to the City Council in June by city financial leaders, bonding consultants and advisers. The City Council, Board of Education, Board of Public Utilities Commissioners and the Personnel and Pension Board all unanimously endorsed it.
If voters approve the plan Nov. 2, city officials and bond counsel will determine if interest rates remain low enough, about 3%, to make the plan worthwhile. They would seek to buy the bonds by January or February.
Then, the city would use this year's pension obligation payment to create a reserve fund to guard against short-term spikes and valleys in earned interest rates on invested bond money.
City Comptroller Josh Pothier proposed the reserve fund, a revised version of one created in West Hartford, which bonded its pension debt. In years when pension interest income drops below a certain point, the reserve fund would replenish at least part of the gap. If the pension fund earns more than expected in a given year, a portion of the city’s annual pension payment could go into the reserve fund.
Pothier said bonding the pension debt is not expected to affect the city’s healthy AA bond rating.
“I think it’s a good thing for Norwich,” said Paul Schroder, chairman of the Personnel and Pension Board. “The board agrees with it. We did a lot of research on it. We had a teleconference with West Hartford a couple months ago. They were lower funded (in the pension plan) than we were. It will save over $40 million.”
Other than the price tag, city officials have another concern as voters consider the bond question and the required technical, legal wording of the question: “Shall the $145,000,000 appropriation and bond authorization for the funding of all or a portion of the unfunded actuarial accrued liability of the City’s Employees’ Retirement Plan, pursuant to the ordinance adopted by the City Council on August 2, 2021, be approved?”
“I hope people don’t get confused by the technical wording,” Schroder said. “The board and the city did some research, and this is the time to do it. It’s the financially responsible thing to do.”
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