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Central Falls files for bankruptcy

August 1, 2011

CENTRAL FALLS — Calling it a move that will “allow Central Falls to re-invent itself as a viable community,” Receiver Robert Flanders announced Monday that the city has petitioned for Chapter 9 bankruptcy protection.
With Gov. Lincoln Chafee at his side, and city officials sitting along the walls of a City Council Chamber packed with reporters, cameras and microphones from local, state and national media outlets, Flanders declared, “from the ashes of bankruptcy, Central Falls will rise again: a slimmer, sleeker City ready to stand on its own two legs as an independent municipality or to merge, marry, or consolidate services with one or more of its neighbors.”
Flanders said he plans to file a detailed reorganization plan with the bankruptcy judge, Judge Frank J. Bailey, chief judge of the U.S. Bankruptcy Court for the Eastern Division of the District of Massachusetts, within 30 days and hopes to bring the city in and out of bankruptcy quickly. He set a goal of six months.
Chafee said the decision to declare bankruptcy — although he did not use that word in an approximately five-minute speech — “was made with deep concern for the residents of Central Falls.” He quoted Central Falls Sen. Elizabeth Crowley, saying, ‘“these are not numbers we are looking at, they are people.’
“I am certain that whatever the coming steps in this process may be,” Chafee added, “be it a merger, shared services or any other options that are on the table, the unique spirit of Central Falls will endure. This is not simply a Central Falls issue, this is a statewide issue and even a national issue.”
Flanders suggested that righting the city’s financial ship would make it more attractive to neighbors as a possible merger partner. He said he is in discussions with Pawtucket, Cumberland and Lincoln about a possible merger or consolidations. “And I am willing to talk to others as well if it means savings and economies for Central Falls.
While news of a municipal bankruptcy sent shock waves across the nation, because such actions are exceptionally rare, locally it did not come as a surprise. More than a year ago, Mayor Charles Moreau and the City Council sought a court-appointed receiver with the intention of declaring bankruptcy, which led to a state law creating the receiver’s office and forbidding cities and towns from going to bankruptcy court on their own.
More recently, Flanders had warned that if the city employees’ unions and its retirees did not agree to drastic cuts in benefits, that he would be forced to take this course. He was not able to reach agreement with the unions and the retirees roundly rejected the benefit reductions Flanders proposed.
Now those cuts are going to be imposed on them anyway.
“Simply stated,” Flanders explained, “the City cannot restore balance to its budget unless it restructures its labor and pension costs as a critical element of any plan of debt adjustment.” He said Central Falls’ financial difficulties are “extraordinarily severe.”
Without making changes allowed by the bankruptcy laws, the receiver said, the city’s general fund would have run dry and have been in the red by the end of this month and would have stayed there for virtually the rest of the year. Budgeters had expected a $5.6 million deficit in the fiscal year that began last month — with more than $22 million in expenses and just $16.4 in anticipated revenue.
Effective immediately, Flanders said, all three of the city’s labor contracts are voided unless the bankruptcy court reinstates them. He said he will work with the unions to hammer out agreements on a new set of salaries and working conditions. He said some layoffs and job losses will be part of the reorganization, but that there also may be “net new jobs” in areas such as economic development. “We may beef up code enforcement because we want to make sure our laws are enforced and we have adequate inspectors.”
Pension checks that are scheduled to go out at the end of this month or in early September will reflect “at least” the reductions Flanders requested from retirees last month. Also as of Monday, active employees and retirees will experience the proposed change in health care plans, which institute a higher deductible, changes in co-payments, and requires a 20 percent co-share of premiums for active employees and retirees.
“There aren’t a lot of signposts” to direct the way forward, Flanders noted. “Municipal bankruptcies are very rare, there haven’t been many and precedents are few and far between. But the law is there to help cities in the straits Central Falls finds itself in.”
Flanders said his office consciously avoided the route taken by financially troubled Prichard, Alabama, which defaulted on its obligations and simply stopped making pension payments to its retirees.
“To default on obligations and stop making pension payments to Central Falls retirees would be totally irresponsible,” he asserted. “Thus, we have chosen to take the road less travelled by toward a restructuring through bankruptcy, because we believe it will make a positive difference for Central Falls.”
Still, Flanders’ action to unilaterally void the contracts could face a challenge.
In a press release, Kenneth DiLorenzo, executive director of Council 94 AFSCME, whose Local 1627 represents municipal workers in Central Falls, said in a press release that, “Council 94 is currently examining all legal remedies available to protect the services we provide to the public and our members. While Council 94 fully acknowledges the fiscal challenges facing Central Falls, we do question the Receiver’s haste to unilaterally change/void contracts.”
Council 94 President J. Michael Downey said Local 1627 had agreed to concessions, including a 10 percent cut in salaries.
Mayor Charles Moreau, who was sidelined by the first receiver, Mark Pfeiffer, and relegated to an advisory capacity said this day, “has been years in coming. When the first contract was given saying a guy could retire after 20 years (July 1, 1992) I think that was the beginning of the problem. Every city and town across the state and across the country are experiencing the same difficulties. He said cuts in state aid to cities and towns made during the administration of the previous governor, Donald Carcieri, “hamstrung communities across the state.”
Asked if he feels any responsibility for the bankruptcy, Moreau said, “No, I don’t.”
City Councilor James Diossa, the only elected official in the city still in a position of influence as a member of the “Receiver’s Council” appointed by Pfeiffer, issued a statement that said, “It is unfortunate that the hard-working people of Central Falls, already hit hard by the recession, must now pay for years of poor management and patronage.
“As a lifelong resident of Central Falls,” he added, “I will continue to ensure that the best interests of my constituents and fellow city residents are taken into consideration throughout this unprecedented process. Every crisis brings opportunity: here is our opportunity to build a new foundation for our city.”
General Treasurer Gina Raimondo said she dies not expect Central Falls’ bankruptcy filing to hinder the state's ability to access the bond markets in the coming months.
“Given today's action,” Raimondo said, “the governor and I are even more resolved to pursue comprehensive pension reform this fall to protect other state and municipal retirees and employees as well as taxpayers from the heartache of the drastic measures being taken in Central Falls. None of these groups did anything wrong and allowing this to happen again is unacceptable.”
State Sen. Crowley, who worked in the City Clerk’s office for 40 years, said, “I am certainly disheartened by what is happening to the retirees. They gave good, faithful service to the community. I thought they should have been given a little more time to come up with a plan. If it were your income, maybe you would say no first, then maybe you would have time to think and talk and come up with a more viable solution. You can’t reinvent yourself at 65 years old. If you are 40 you might, but not 65.”
Crowley says it is her hope that, once the city gets back on its feet “maybe we can give some of those losses back.”
Central Falls/Cumberland Rep. James McLaughlin told The Times the bankruptcy action was “premature.”
Rep. Agostinho Silva said, “We need to make sure that whatever happens with this process that the city ends up in a better financial situation than it is today. We need to make sure the people’s rights are upheld and their voices are heard.”
House Speaker Gordon Fox issued a statement that said, “"I know this was a very difficult decision for Judge Flanders to make, and I have pledged my assistance to him in order to achieve the best result for the people of Central Falls. My main concern is put Central Falls back on sound fiscal footing as quickly as possible."
Senate President Teresa Paiva Weed added that, "The decision today by the state's receiver is one which I know was not arrived at lightly, yet which has ramifications not just for Central Falls but for our entire state. It is important that the receiver file a plan to bring Central Falls out of bankruptcy as quickly as possible.”

 

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