Central Falls is too small, too poor and way too deep in debt to remain a city on its own.
That is the verdict of state appointed receiver Mark Pfeiffer, who recommends that neighboring Pawtucket take over the Square Mile City or, failing that, services such as police, fire and public works be regionalized with surrounding communities to keep Central Falls afloat.
“Central Falls, in my judgment, cannot remain a stand-alone community as it presently is unless the state wants to subsidize it into the future,” Pfeiffer told reporters at City Hall Wednesday morning.
Despite its own wobbly fiscal situation, Pawtucket would be the prime candidate to annex Central Falls, Pfeiffer reasons in his 93-page report to Gov. Donald Carcieri and state Revenue Director Rosemary Booth Gallogly, because the other two neighboring communities are too small to absorb it.
Adding Central Falls’ 19,000 residents would nearly double the population of Lincoln and it would increase Cumberland’s population by more than half.
By contrast, Pawtucket, with nearly 73,000 residents, would increase its population by only 26 percent if it adopted the state’s smallest, but most densely populated municipality.
The report notes dryly that “upon first consideration, one may anticipate that Pawtucket would have little interest in considering the prospect of annexing a city that is burdened with fiscal solvency issues and is in fact in state receivership.” But it adds there are several factors that might make it more palatable.
For one, adding Central Falls would make Pawtucket the state’s second-largest city, which could open new revenue streams from both the state and private grant-givers. It might also allow Pawtucket to address its own operating deficits as well as the cost of union contracts, unfunded pensions and other obligations to retirees.
There would also be economies of scale from consolidating services and the added tax and other revenue streams Central Falls would provide.
A Pawtucket takeover of Central Falls might require approval of voters in one or both communities or enabling legislation by the General Assembly. Pfeiffer said those contingencies have not been studied at this point.
Pawtucket Mayor-elect Donald Grebien, who along with his transition team had been briefed by Pfeiffer, said, “I find it very interesting that the city in the worst financial position would want to merge with the city in the third-worst position.
“First and foremost,” Grebien said, “I have a $12.9 million deficit that will be handed to me Jan. 5 and I have six months to resolve it and that is my priority.”
Grebien says he is looking at regionalizing services with other communities as a way to save money. “As for total annexation, you have to keep your mind open,” he said, but his first concern will be “what is in the best interest of Pawtucket.”
Central Falls’ financial woes are so deep and so profound that Pfeiffer says, it has made itself the state’s problem.
Pfeiffer said he found the city’s finances in “disarray” when he came in as receiver, asserting that no work had been done on budget preparation for the current fiscal year. While the finances are “stabilized” for the current year, Central Falls faces deficits in the next five years totaling a projected $26 million.
He said it would not be fair to blame current officials for the problem, because its roots go back for decades.
The city’s unfunded pension liability is approximately $48 million, he said and the unfunded liability of health insurance and other benefits promised to retirees — identified with the bureaucratic acronym OPEB, for other post-employment benefits — is an estimated $32 million.
To fund those two liabilities with its current revenue stream, Pfeiffer said, “The city would be unable to fund any other service or expense, including public safety (police and fire), public works, debt service for nearly five years.”
The good news, if you can call it that, for Central Falls taxpayers, is that Pfeiffer believes “you can’t tax your way out of this.”
He said the supplemental property tax he imposed earlier this year, and the change in the automobile excise tax exemption, amounted to a 19 percent tax increase. He acknowledged that such increases would be “unsustainable” going forward. He said a 2 percent per year increase in property taxes was anticipated in future years for budget purposes.
“No one solution will solve this problem. Taxation will not resolve the problem; cutting expenses will not resolve the problem. What is necessary is not just pension reform or the OPEB reform as we refer to it, but the form of government must be reformed in Central Falls.
One of the many contributing factors to the city’s difficulties, Pfeiffer said, is that the Wyatt Detention Facility has not been able to make the payments it owes to the city for the past several years. He said the city budgeted to receive $500,000 from Wyatt this year, but added, “that isn’t going to happen.” The report states that, “serious concerns exist regarding Wyatt’s ability to remain a functional entity.”
Pfeiffer said that, ultimately, “the state of Rhode Island will be responsible for crafting a solution to the problem. Rhode Island can not allow any of its cities or towns to fail. It is that simple. Number one, it would not be good public policy, obviously, and, number two, it would destroy access to capital markets, which all of the communities need and the state itself needs.
“The state needs this solved just as much for the state’s sake as it does for Central Falls’ sake,” Pfeiffer said.
The state already provides 100 percent of the funding for the Central Falls school system.
Asked for his reaction to the receiver’s report, Mayor Charles Moreau said, “I told you so.
“When we went into (court-appointed) receivership, my council and I had been very diligent. We knew structural changes needed to be made. We already looked at all this stuff.”
Merging with the city of Pawtucket “is not an option,” Moreau told The Times. “Pawtucket has struggles of its own.”
He said the financial problems of Central Falls and other Rhode Island communities can be traced back to financial aid cuts made by the Carcieri administration in recent years. “Those cuts need to be restored, if not more.
“We had a financial plan,” Moreau said, responding to Pfeiffer’s charge that no budget planning was done. “Our plan was cut wide open” by the state aid reductions. We were cut $3 million in two years by the governor.”
Moreau predicted that Central Falls “is going to be a pioneer” in making the tough decisions that other communities will eventually have to make in union contracts, pensions and other costs.
Michael Trainor, spokesman for Governor-elect Lincoln Chafee, said “We would not rule any of (Pfeiffer’s) recommendations off the table at all. This is something Governor-elect Chafee is very concerned about, very focused on and preparing himself to deal with when he becomes governor.
Trainor noted that Chafee said throughout the gubernatorial campaign that he is concerned about the state of unfunded pensions. “What occurred in Central Falls is unfortunately a precursor of what could happen in other communities. Paying proper attention pro-actively to these situations is going to be a priority for the Chafee administration.”
House Speaker Gordon Fox issued a statement Wednesday saying, “While I can’t yet make a commitment on how the House will respond, I think that many issues raised in the report deserve to be fully vetted in public hearings early in the new session. I look forward to reviewing the report in much greater detail and working with Governor-elect Chafee and my General Assembly colleagues to tackle this extremely serious problem.
“The most immediate concern,” Fox said, “is to address the Central Falls’ troubles in the short term by setting out a path leading to fiscal stability. While some may look at this as a local issue, it has serious ramifications at the state level. The long-term viability of local governments is critical to the state’s economic well-being.”
Senate President Teresa Paiva Weed said in a written statement, “Judge Pfeiffer’s report highlights the alarming fiscal concerns for the City of Central Falls. However, Central Falls is only one of several communities facing significant fiscal challenges. This is an opportunity to find and craft long term solutions for cities and towns, particularly as they pertain to underfunded municipal pension programs.
“The Senate’s Municipal Pension Study Commission has been actively engaged in this issue, and this will be a priority for the Senate in the upcoming legislative session,” Paiva Weed added. “The Senate agrees that there is a need for swift but prudent action by the State, and will work with Governor-elect Chafee through the budget process to craft solutions that address our municipalities’ fiscal challenges.”