I am writing to express my support for Question 1 – Pension Obligation Bonds on Andover’s June 15 ballot.
Since the first Select Board workshop in November, I have taken a deep interest in Andover’s struggle to meet our unfunded pension liability. I was shocked about the situation and inspired to help.
After spending countless hours analyzing the numbers, I have reached the conclusion that the plan outlined in Question 1 is our best option. Let me explain.
Put simply, the town has three options:
Option 1: Ignore the unfunded pension liability. Before long, the town would lose its AAA bond rating; and eventually, the state would take over governance. Like what happened to the city of Chelsea in 1991, Andover would go under state receivership. We would completely lose control of our destiny.
Option 2: Pay the Retirement Board about $23 million annually until 2040. The town would have to appropriate the funds by raising taxes through Proposition 2 ½ overrides or by severely cutting services – or both.
Option 3: Adopt the plan outlined by Question 1. Taking advantage of low-interest rates, we would borrow a large portion of the unpaid liability and provide that amount as a lump sum to the Pension Board. We would assemble a team of domain experts to help the Pension Board create a diverse portfolio that we can expect to earn 5% to 6%. By comparison, most pension boards have an objective of 7% earnings.
Let’s compare Options 2 and 3, which offer radically different approaches to paying off the unfunded liability.
By my calculations, with typical market fluctuations over 18 years, Option 3 promises to save the town as much as $100 million by 2040. Even with a deep recession lasting more than 10 years, Option 3 would still come out ahead of Option 2 by about $7 million.
These findings are based on my own analysis of the town manager’s proposal as it evolved. I used 90 years of S&P 500 historical data to guide me.
I recruited my son, who is a data scientist and math PhD, to help me devise a model that would account for potential risk. I am happy to say that the model suggests a strong preference for Option 3 – the plan outlined in Question 1.
That is why I urge Andover voters to vote “yes” on Question 1 – Pension Obligation Bonds, on the ballot on June 15.