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Flanders: Municipal bankruptcy not such a horrible thing

March 11, 2012

WARWICK — Central Falls Receiver Robert Flanders extolled the virtues of municipal bankruptcy Saturday, telling the RI Statewide Coalition that it “is not a horrible thing; it is a thing we ought to be doing.”
Flanders, a pioneer in the field of Chapter 9 municipal bankruptcy because of his efforts in Central Falls, went on in that vein at the taxpayer group’s annual meeting, asserting that, “far from being a bad thing, it is a very good and necessary option. If it wasn’t called bankruptcy, if it was called restructuring, if it was called debt adjustment, if it was called reorganization, we’d be doing more of it.”
He brushed aside what is normally thought to be a major downside of a bankruptcy — the damage to civic reputation — saying, “Get over the stigma — stigma, schtigma. There is life after bankruptcy. And it’s a better life. It’s one where you have balanced budgets and you can live within your means.”
“That, to me, is the biggest lesson of Central Falls,” the former Supreme Court justice said.
Unlike Central Falls, where the mayor and city councilors were stripped of their power after challenging the prerogatives of the receiver in court, Flanders said, “that doesn’t have to happen in other communities that are administered by mayors and city councils who are going to be cooperative, who in fact are leading the charge in this restructuring process, I predict that is something that would be and should be negotiated with the governor’s office, with the director of revenue (who appoints receivers), so that these folks don’t have to lose their power. Because that is one of the big inhibitors.”
When Flanders asked, “What mayor wants to ask Governor Chafee to put a receiver in there when the receiver is going to strip the mayor of all of his or her power,” Woonsocket Mayor Leo Fontaine’s hand shot up, drawing laughter and applause from the crowd.
Fontaine later told The Call he was just joking and wants to keep the city out of any kind of state intervention for as long as possible. Fontaine was on stage as one of several participants in a panel discussion on the fiscal crises in Ocean State municipalities.
When it was his turn to speak, Fontaine said, “we are a victim of our own good intentions. All of these laws we’ve passed over the years to provide benefits to people, whether it be through union contracts or benefits to those less fortunate than we are who we try to provide a safety net for, and we find ourselves collapsing under the pressure of all those promises.”
The mayor admitted that in 2010, Woonsocket considered seeking court-appointed receiver as Central Falls did in May of that year. “We were looking at the same option, because when you look at the benefits of going through a restructuring, there certainly are many. We thought that going into the courts and seeking this corporate receivership may have been a good option but I remember at the time saying to my directors and the attorneys at the time “let’s not do anything until the assembly gets out of session, because I was concerned that as soon as we filed something, everyone would coalesce and find a way of passing a law that inhibit us doing that.”
That is exactly what happened once Central Falls filed for its receivership. In the matter of a few weeks, the General Assembly approved legislation prohibiting municipalities from seeking receivership and putting in place the law that outlines receivership and municipal oversight from the state.
“I don’t see solving the problem of government by inserting more government,” Fontaine said.
Flanders said that, as he has proposed in Central Falls, cities and towns should be combining the administrative functions of the schools and the municipal side of government to reduce redundancy and save money. “We can’t any longer afford to have two of everything,” the receiver said, “this isn’t Noah’s ark.”
Fontaine agreed. Detailing his city’s high-profile financial problems, aggravated by school department deficits, the mayor said, “again, in our good intention of protecting education and letting them teach our children, government has built up these walls between municipal government and school government and it’s hindered our ability to keep tabs on what’s going on. You see in Woonsocket and so many other communities, East Providence is probably a great example, where a school department can drag a community down.”
In large part because of school department shortfalls, the state appointed a fiscal overseer and then a budget commission to rein in East Providence’s finances.
“Who would have thought a few years ago that East Providence of all places would have been in this situation faster than Woonsocket?” Fontaine asked. “But I think these walls that have built up in government have got us to this point.
“We are now looking at a situation in Woonsocket,” he said, “where people are already highly taxed, our businesses are highly taxed, and we’ve got to try to find a way out of it. I think it is going to come down to a point of looking back to the employees for additional concessions, looking for additional opportunities for economic development, trying to look at those avenues that we have afforded to us, which are few. Unfortunately, one of those options is supplemental tax bills, which is probably the worst thing in the world when you look at the condition the taxpayers are in already.”

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