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Monday, August 01, 2011 12:52 PM

Central Falls Rhode Island Files Chapter 9 Bankruptcy; Court Asked to Negate Collective bargaining Agreements; Vallejo Precedent

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At long last ‘Dire’ Situation Forces Rhode Island City of Central Falls Into Bankruptcy

Central Falls, Rhode Island’s poorest city, filed for Chapter 9 bankruptcy protection as it struggles to meet its pension obligations.

The petition was filed today after state officials failed to persuade unionized police, firefighter and municipal retirees to accept voluntary benefit concessions, according to a statement from Robert Flanders, a judge appointed to oversee the city’s finances. Flanders said he asked the court to reject existing collective-bargaining agreements with the unions.

Central Falls, a city of about 18,000 located about 6 miles (9.7 kilometers) north of Providence, is the fifth municipal entity to file for bankruptcy this year, compared with six in all of 2010, according to data compiled by Bloomberg. The filing followed last week’s move by lawmakers in Jefferson County, Alabama, to postpone a vote on proceeding with what would be the biggest U.S. municipal bankruptcy.

The Central Falls pension plan was expected to run out of assets by October without additional funding or significant concessions from both current employees and retirees, according to a June 17 report from Moody’s Investors Service.

Frank Bailey, a U.S. bankruptcy judge in Massachusetts, will oversee the bankruptcy for the city, according to a court filing.
Police and Firefighters Asked to Accept 50% Pension Haircuts

On July 23, 2011 I reported Central Falls Gives Ballots to Police and Firefighters Asking for 50% Pension Reductions or Risk Losing Everything in Bankruptcy Court
In a scene that is going to play out in scores of cities across the nation, unions are going to come to grips with the fact that pensions are not sacrosanct. Please consider Rhode Island city asks retirees to cut their pensions

Simple Rule

What cannot be paid won't. Taxpayers have had enough. Central Falls is a small and troubled city, but this same scene is going to eventually hit Pittsburgh, Oakland, Houston, Detroit, San Francisco, Los Angeles, Chicago, and most likely every major city in the country.

Benefits are untenable. The sooner something is done, the better off everyone will be.

Things That Must Change

  1. Defined benefit pension plans for government workers must end
  2. Davis-Bacon and prevailing wage laws that drive up costs of Federal projects and clobber city and municipal governments must come to an end
  3. National right-to-work laws must be enacted
  4. Collective bargaining of public unions must end
  5. Existing pension benefits must be renegotiated

Unions will not like any of those but they are all going to happen.

I am disappointed that Rand Paul and others in the Senate did not take up points 2 through 4 in the budget negotiations. Small tax hikes in return for those items would have been well worth it.
Vallejo Precedent: Union Contracts Can Be Voided

Central Falls retirees said no, and now it is up to the courts. Please recall there is already precedent in Vallejo, California for union agreements to be tossed out in bankruptcy.

Flashback March 17, 2009: Judge Rules Vallejo Can Void Union Contracts
In a groundbreaking ruling as well as a rare victory for common sense and the overall good of taxpayers, Bankruptcy Judge Rules Calif. City Can Void Union Contracts.
The Central Falls' police and fire fighters are taking a big chance. There is no realistic alternative to massive cutbacks in those pension agreements. Raising taxes would drive out homeowners and businesses and that is the last thing Central Falls needs.

Expect this type of action to hit major cities within the next few years. The sooner the better because public union pension contracts are untenable.

Mike "Mish" Shedlock
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