Norwich — City leaders grew anxious in recent weeks over spiking inflation and news of pending increases in loan interest rates as the city worked to bond $145 million in city pension debt before it was too late.

Norwich won the race Thursday, selling $145 million in pension obligation bonds at an average interest rate of 3.37% in a plan to save taxpayers on annual pension costs and to stabilize pension debt over the next 25 years. The sale will save city taxpayers and Norwich Public Utilities ratepayers a combined more than $3 million in the upcoming fiscal year, according to calculations Friday by city Comptroller Josh Pothier.

Voters overwhelmingly approved bonding the pension debt in the Nov. 3 referendum. But city officials had to wait for the state Office of Policy and Management to approve the plan before seeking to sell the bonds. Bond rating agencies affirmed the city's solid AA bond rating earlier this month in advance of the bond sale.

City Manager John Salomone said the average 3.37% interest on the 25-year bonds was a third of a percentage higher than city officials had hoped, but within the range that made the bonding worthwhile. If the interest rate were 4%, the plan might not have been feasible, he said.

“It was successful. It was kind of scary the last few weeks with the interest rates going up,” Salomone said Friday. “But overall, I think the citizens who voted for the bond issue will be pleased.”

On Friday, Pothier calculated the pension debt service payment in comparison with amounts city taxpayers and NPU ratepayers would have had to pay as annual pension debt contribution. The new annual bond debt service payment due Aug. 1 will be $13.7 million, he said, while the total pension debt contribution for 2022-23 would have been $16.7 million.

The savings breaks down to $1.76 million, or 0.88 mill in taxes based on the current citywide tax rate, for debt covering city and school employees. Residents in the fire district, who pay more to cover paid city firefighters, will save an additional $232,635, for a fire tax reduction of 0.36 mill based on this year’s tax rate.

Pothier calculated the savings covering NPU employees at $1.05 million. NPU ratepayers pay pension obligations for those employees.

Salomone said it was pleasing on Thursday that when the city offered the $145 million in bonds for sale, there were four times the requests to buy the bonds than the amount to be bonded. Potential buyers with $650 million to invest requested to buy the city’s bonds, indicating it was a desired investment portfolio, he said.

He credited the city’s healthy financial condition, good bond rating and support by taxpayers for the strong showing by investors.

The City Council approved the pension bond plan in August after hearing a presentation a month earlier by bond and pension experts. Taxpayers each year now will pay the annual bond debt payment, plus contributions toward the pensions for active employees.

A key to the plan was Pothier’s proposal to create a reserve fund that will function as a safety valve to avoid volatile swings in interest earned from stock market investments of the bond proceeds. In years when pension interest income drops below a certain point, the reserve fund could replenish at least part of the gap. And if the pension fund earns an inordinate high interest revenue, a portion of the city’s annual pension contribution would go into the reserve fund rather than the pension fund, replenishing the reserve fund.

c.bessette@theday.com