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The Bangor City Council was correct this week to give a nod to authorizing $35 million in pension obligation bonds to pay off its unfunded liability to the Maine State Retirement System. The move follows other Maine communities interested in lowering the amount of interest it pays on the retirement system debt.
The state retirement system, to which Bangor would pay $2.2 million this year, assumes an 8 percent rate of interest. City Finance Director Debbie Cyr believes Bangor could issue bonds with a rate between 6 percent and 7 percent. The savings, she estimates, would return about $270,000 this year to the city and, depending on how the debt is structured, an equal amount or more through 2026, when the liability would be paid off. Other Maine cities such as Portland, Lewiston and Rumford have discovered similar savings through bonding their retirement-system liability.
The unfunded liability is not the fault of the city but the result of inadequate state collections as benefits and benefit rates changed over the years. The city no longer uses the state retirement system but many
of its retirees still do and, in any event, the liability predates current payments. Trying to find a fiscally sound method for meeting this obligation and at the same time saving
a little money is the responsible thing to do. Bangor has a solid bond rating and would be recognized as a low risk, thereby improving the interest rate it would need to pay on these taxable bonds.
Taxpayers hoping to realize a lower tax bill as a result of the savings will need to realize, first, that the $270,000 or so savings is a tiny fraction of Bangor’s $64 million annual budget; second, that the state is being especially stingy with General Purpose Aid to Education and municipal revenue sharing; and, third, that the number of requests for services, such as even more new sidewalks near the mall, could easily chew up the savings.
Still, it’s far better to save through this low-risk means than continue to pay higher interest rates.
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