Norwich successfully sold $145m in pension bonds for tax savings
Feb. 11 – NORWICH – City leaders have worried in recent weeks over soaring inflation and news of impending loan interest rate hikes as the city scrambles to bond $145 million of city pension debt before it’s too late.
Norwich won the race on Thursday, selling $145million in pension bonds at an average interest rate of 3.37% as part of a plan to save taxpayers on annual pension costs and stabilize pension debt over the next 25 years. The sale will save city ratepayers and Norwich utility ratepayers more than $3 million over the next financial year, City Comptroller Josh Pothier calculated on Friday.
Voters overwhelmingly approved the pension debt bond in the Nov. 3 referendum. But city officials had to wait for the Office of State Policy and Management to approve the plan before seeking to sell the bonds. Bond rating agencies confirmed the city’s strong AA bond rating earlier this month ahead of the bond sale.
City Manager John Salomone said the 3.37% average interest on 25-year bonds was a third of a percentage point higher than city officials had hoped, but within the range that made valid obligation. If the interest rate was 4%, the plan might not have been feasible, he said.
“It’s been a success. It’s been a bit scary the last few weeks with rising interest rates,” Salomone said on Friday. “But overall, I think the citizens who voted for the bond issue will be satisfied.”
On Friday, Pothier calculated the pension debt service payment against the amounts that city ratepayers and NPU ratepayers would have had to pay as an 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. millions of dollars.
The savings break down to $1.76 million, or $0.88 million in taxes based on the current citywide tax rate, for debt covering city and school employees. Residents of the fire district, who pay more to cover paid municipal firefighters, will save an additional $232,635, for a fire tax reduction of $0.36 million based on this year’s tax rate.
Pothier calculated the savings covering NPU employees at $1.05 million. NPU taxpayers pay the pension obligations of these employees.
Salomone said it was pleasing Thursday that when the city offered the $145 million bond for sale, there were four times as many requests to buy the bond as the amount to be bonded. Potential buyers with $650 million to invest asked to buy the city bonds, indicating it was a desired investment portfolio, he said.
He credited the city’s financial health, strong bond ratings and taxpayer support for strong investor performance.
The city council approved the pension bond plan in August after hearing a presentation a month earlier from bond and pension experts. Taxpayers will now pay the annual bond debt payment each year, as well as pension contributions for active employees.
Key to the plan was Pothier’s proposal to create a reserve fund that would function as a safety valve to avoid volatile fluctuations in interest earned on stock market investments of bond proceeds. In years when retirement interest income falls below a certain point, the reserve fund could fill at least part of the gap. And if the pension fund earns disproportionately high interest income, a portion of the city’s annual pension contribution will go into the reserve fund rather than the pension fund, replenishing the reserve fund.