Central Falls Rhode Island - Bankrupt - Goes Into Receivership

It's the end of the line for Central Falls, Rhode Island. Central Falls had been perpetually spending more than they take in. That's about to change.

Please consider $3 million in debt, Central Falls in receivership.

Declaring fiscal insolvency, city officials Wednesday persuaded a Superior Court judge to appoint a receiver to take over municipal finances, a process that could end up with new contracts imposed on the city’s unions and vendors.

Receivership is the state-law version of federal bankruptcy. The court-appointed receiver has the power to approve or reject purchases and payments and, if the court approves, change contracts with unions and vendors and hire and fire municipal employees.

City Solicitor John T. Gannon said the city is in the middle of all its municipal employee union contracts. Mayor Charles D. Moreau has been trying to negotiate concessions, he said, but without success.

Central Falls’ slogan is “A City with a Bright Future,” but the present has been pretty grim. Its high school, where 96 percent of its 800 students live in poverty, was targeted for a state-ordered reorganization because of consistently low scores and graduation rates. The entire teaching staff was threatened with dismissal until the administration and the teachers union reached an agreement last weekend.

In its petition to the court for appointment of the receiver, the city administration said it has an anticipated deficit this fiscal year of $3 million on a city budget of about $18 million and an anticipated deficit $5 million in the budget year beginning July 1. The officials said the shortfall could not be covered by austerity measures.

Beside the budget shortfall, the city’s pension fund for its police and fire retirees has $4 million, way short of its accrued liabilities of $35 million. Gannon said the city pays out $2.2 million a year in pension benefits from the fund.

In addition to unilateral cuts in pay and benefits enacted by the East Providence School Committee in January 2009, the city has also cut benefits for police officers and school custodians, laid off municipal custodians and threatened major changes in the firefighters’ contract. The Fire Department pact is in the midst of what may be a year-long arbitration.

Austerity Yet Again

For starters, note the use of the buzzword austerity again: "The officials said the shortfall could not be covered by austerity measures."

For more on austerity, please see "Austerity" the New Buzzword: Mass Protest in Romania Over Austerity Measures; Greek Unions Protest Austerity Measures;Sarkozy Grapples with Austerity.

Flashback February 2010: Central Falls Rhode Island Fires Every High School Teacher.

In February, the school district fired every teacher. Unfortunately it did not stick. Recently the school district hired back all of those teachers on the district's original terms.

Nonetheless, the resolution was a no-cost situation for the unions. The teachers deserved to be fired, they were fired, and they should have suffered the consequences of their stupidity.

Smart Choice for Central Falls

Receivership was the smart choice for Central Falls. Notice the pension fund has $4 million, with liabilities of $35 million. Hopefully the Superior Court judge does the correct thing and voids the union contracts and pension obligations.

Then let's hope that city after city chooses the same route.

Regardless, the city needs to fire all of the police and fire departments and outsource to the local sheriff's association or anyone who will do the job cheaper.

It's time to send a message to the union parasites. Vallejo, California had the opportunity as well but blew it. Please see Vallejo's Inept City Council Blows It for details.

Many will say my proposal is unfair to the workers given they had a contract. Actually it's not. There was never a serious contract negotiation process in the first place.

Unions bought politician's votes with thug tactics tantamount to extortion. Politicians were all too willing to go along to get elected.

In final analysis they both deserve nothing. However, I would generously settle out of court right now for 20 cents on the dollar.

By the way, expect to see more bankruptcies and receiverships. It may be the only way to get rid of union termites.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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