AN ACT RELATING TO TOWNS AND CITIES -- INDEBTEDNESS OF TOWNS AND CITIES

2025 Regular Session Introduced by Mike Chippendale and 8 co-sponsors

Requires prior state approval for long-term bond sales to cover deficits or pension/OPEB; mandates annual OPEB funding reports and plans to reach 35% funding.

03/27/2025 Committee recommended measure be held for further study

Summary — HB 5962: "An Act Relating to Towns and Cities — Indebtedness of Towns and Cities" (LC001621)

Status
- Introduced in the Rhode Island General Assembly Feb 28, 2025; referred to House Municipal Government & Housing.
- Public hearings held / reserved Feb 18–20, 2025.
- Committee action: recommended the measure be held for further study (03/27/2025).
- Effective date: upon passage.

Purpose / intent
- Strengthen state oversight of municipal borrowing used to fund operating deficits, pension obligations, or other post‑employment benefits (OPEB).
- Increase fiscal accountability and require disclosure and remedial plans when municipalities’ OPEB trusts are underfunded or contributions are missed.

Key provisions
1. Prior approval for bond sales to fund deficits or pension/OPEB obligations
- Except as otherwise provided in chapter 9 of title 45, no municipality may sell a long‑term bond to fund a deficit or to fund pension obligations or other post‑employment benefits without prior approval of:
- the State Auditor General, and
- the Director of the Rhode Island Department of Revenue.

Annual reporting and remedial plans when OPEB funding is deficient

Any municipality or quasi‑public agency that has failed to make its annual OPEB trust contribution, or whose OPEB trust is funded at less than 35%, must file an annual report with the Department of Municipal Finance that includes either:
- A plan to make the missed trust payment within three (3) years; or
- A plan to increase the trust funding level to at least thirty‑five percent (35%) within ten (10) years.

Severability

If any provision is held invalid, the remainder of the law remains in effect.

Who is affected
- Municipalities and quasi‑public agencies in Rhode Island that (a) seek to issue long‑term debt to cover deficits or pension/OPEB obligations, or (b) have underfunded or missed payments into OPEB trusts.
- State officials responsible for review/approval (Auditor General and Department of Revenue) and the Department of Municipal Finance, which receives mandated reports.

Practical effects / potential impact
- Increases state-level control and review of municipal decisions to convert operating shortfalls or benefit obligations into long‑term debt, potentially deterring bond-funded shifting of recurring obligations.
- Creates formal reporting and remediation requirements intended to encourage on-time contributions to OPEB trusts and to improve long‑term funding trajectories (35% funding floor targeted).
- Could delay or complicate borrowing for municipalities seeking to issue long‑term bonds for these purposes and imposes an administrative compliance burden (annual reporting, plan development).
- Provides mechanisms for transparency and early intervention but does not itself mandate specific remedies beyond plan submission and state approval for bond issuance.

Effective upon passage.