CENTRAL FALLS – Less than two months after Central Falls filed for Chapter 9 bankruptcy, Gov. Lincoln Chafee and state-appointed Receiver Robert Flanders have put forward a five-year financial plan that, if approved by the Bankruptcy Court and creditors, would allow the city to continue to exist on its own, without being taken over by Pawtucket or carved up with the pieces parceled out among its neighbors.
“This is our plan for how the city is going to recover and how it is going to be stabilized for the next five years, Flanders told a press conference at City Hall Thursday. If properly implemented, he added, the plan, “can achieve what many said was not do-able – namely to return the city to fiscal viability with a balanced budget sustainable into the foreseeable future.”
Many of the steps needed to reposition the city’s financial situation have already been taken, Flanders said, including drastically cutting back the pension and health care benefits for retired police and firefighters, reorganizing city departments and laying off employees, scrapping current labor contracts and replacing them with new agreements now being negotiated.
One aspect of the plan anticipates hiking the city’s property tax rate by as much as state law allows – 4.25 percent this year and 4 percent for each of the four following years. A public safety manager would be appointed, in effect combining the jobs of the police and fire chiefs.
The city’s longtime police chief, Joseph Moran III, was allowed to retire in March, 2010, and begin collecting a pension of more than $40,000 a year while returning to work on a five-year contract at the full $72,000 salary. Flanders voided that contract earlier this month, eliminating many of the benefits it included and Moran’s pension was cut in half earlier this year, along with many of the other police and fire retirees.
Flanders said Thursday that Moran’s position would be the only additional layoff on top of those that have already occurred. He said some new employees could be added to departments such as code enforcement.
Chafee said that there might be legislation proposed to boost economic development in Central Falls, such as restoring the Historic Buildings Tax Credit – which the legislature recently abandoned as too expensive statewide – exclusively for Central Falls.
The city’s library and community center closed earlier this year, although the library has reopened on a volunteer basis. Flanders said there is a plan to share library services with Pawtucket and that Progreso Latino may start operating the community center soon.
If the court and creditors agree to a “consensual plan of debt adjustment,” Flanders said, the city could emerge from bankruptcy by the end of the year.
But the receiver added a caveat.
“While I remain hopeful, I want to temper the optimism that we have to date with the observation that we have not yet reached agreements with the unions or retirees” on renegotiating employee contracts or on the reduction of pension and health care benefits, he said.
“Failing to reach such agreements, Flanders warned, “would be most unfortunate and would add substantial cost and time to the bankruptcy process because of the time needed to litigate and to judicially resolve whatever objections may be lodged to the plan.
Flanders said he is “committed to doing everything within the realm of prudence” to win agreement from the unions and retirees.
Thanks to a law passed by the General Assembly earlier this year, holders of Central Falls’ municipal bonds are assured of payment and will not lose out or take a “haircut” on what they are owed as, for example, the city’s pensioners have suffered.
The state’s smallest city, with a $16 million annual budget, had a $6 million annual operating deficit and a whopping $80 million unfunded pension liability when the state first sent a receiver to straighten out the city’s fiscal woes in July, 2010. That first receiver, Mark Pfeiffer, virtually threw Mayor Charles Moreau out of City Hall, taking away his office keys and city vehicle, and reducing his salary by two-thirds. Moreau and the elected members of the City Council were relegated to advisory status, with most of their power stripped away. Moreau and four of the councilors challenged the receiver’s authority in Superior Court, but a judge upheld the 2010 law under which the receiver was appointed and empowered and the state Supreme Court agreed.
According to the documents provided by Flanders, five-year budget anticipates that the mayor and the City Council members would be restored to their full power and compensation in the fiscal year that starts July 1, 2012, and with their health benefits restored.
Flanders said it would be up to the citizens of Central Falls to decide whether they want to retain the mayor/council form of government or to switch to a city manager.
“We are a democracy and this is a difficult situation; we’ve got someone like me, an unelected person, coming in and making decisions that are affecting the future of the city. I think people want to see elected government restored as soon as possible, so my hope is that that will happen.”
Flanders told reporters, “the idea would be to bring back elected officials and restore them as soon as practically possible.
Revenue Director Rosemary Booth Gallogly noted that a community that emerges from state oversight, as Central Falls has, must appoint a finance administration officer from a list provided by the Division of Municipal Affairs who would serve for five years. “So there would be continued oversight even after the receivership itself ends.”
Asked if a successful restructuring plan would vindicate the state’s stepping in and imposing an unelected receiver to run the city, Flanders said, “to the extent that the plan is implemented and is approved by the bankruptcy court and the city follows the plan and is restored to fiscal stability, that would be a tremendous feather in the cap of the state for coming up with a scheme that could turn around a city that had the troubles of Central Falls.
City Councilwoman Eunice DeLaHoz, standing in the back of the room during the event, challenged Flanders.
“You are in the process of filing for bankruptcy,” she said. “Approximately two years ago, as elected officials, we took a determination to file for bankruptcy. Two years later, we’ve come to the same point where we were two years ago: that we need to file bankruptcy. However, it has taken a lot longer, which directly impacts the time it is going to take the city to recover, number one, and two, I think the costs have been prohibitive for the city because it has taken so long to reach the same decision we as elected officials had come to two years ago.”
Flanders retorted that the decision the council and mayor took was to file for receivership, not bankruptcy, “which is quite different. One of the reasons, frankly, that it has taken so long is that you and your colleagues contested the receivership law, took it to Superior Court, took it to the Supreme Court and that wasn’t resolved until March of this year. So unfortunately it has cost the state and the receivership hundreds of thousands of dollars in order to litigate that matter to a conclusion. That caused great delay and expense.”