Town files Chapter 11, bye bye pensions E-mail
Written by Mark Nichols   

In a drastic move that wipes out the contracts of police, firefighters, teachers and other town employees and cut pension checks by as much as 50 percent, the small Rhode Island town of Central Falls, which found itself unable to pay for retiree pensions and health care premiums, has filed for bankruptcy with U.S. Bankruptcy Court in Boston. It is the first city in Rhode Island history, and the fifth city in the United States, to declare bankruptcy. “The current situation is dire,” noted Governor Lincoln Chafee. In addition, more savings will be sought through layoffs, cuts to health care benefits and piggybacking with neighboring communities to share some services and costs.

The 1.3-square-mile city, which has 19,000 residents, was once a textile, blacksmithing, and gun manufacturing center, but has fallen on hard times in recent years, Chafee said. Central Falls Receiver Robert Flanders said he filed a motion to immediately reject the collective bargaining agreements with the police and firefighters’ unions, as well as the municipal workers’ unions.

Marc B. Gursky, a well-known labor lawyer representing the active firefighters, noted that Central Falls firefighters are considered among the state’s finest because they are known for fighting tough fires in cramped neighborhoods dotted with triple-decker apartment houses.

“At the same time,” he said, “they are the lowest-paid firefighters in the state.” The state receiver voided the contracts of the firefighters and police after talks on concessions failed to reach a conclusion. “Labor costs are indisputably the largest single expenditure in the city budget and the source of the overwhelming unfunded-pension debt the city faces,” Receiver Robert Flanders said.

“Reducing those costs is the centerpiece of any viable recovery plan.” Under the bankruptcy restructuring, active employees and retirees will immediately pay a higher deductible on their health care plans, as well as higher co-payments and a 20 percent co-share of premiums.

The next pension payments, due at the end of August or early September, will be reduced by no more than 50 percent for retirees receiving a pension for more than $10,000. According to a Wall Street Journal article, a law enacted by Rhode Island recently guarantees that the city’s bondholders will receive their money first as part of any settlement arising out of the bankruptcy proceedings.

“This is a wake-up call for other struggling towns,” noted a researcher from George Mason University.

“States should be looking at Rhode Island and saying, ‘How can we avoid this?’”

Alabama’s Jefferson County, for example, is on the brink of the largest municipal bankruptcy in the nation’s history, and Harrisburg, Pennsylvania is considering going that route as well. Vallejo California has also gone under. For more on some of the consequences in terms of muicipal insolvency and mass police layoffs, check the October issue of American Police Beat.


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