After almost 13 months of bankruptcy proceedings, a six-year exit strategy is now in place for Central Falls, R.I. Earlier this month, the judge handling the city's Chapter 9 proceeding, Frank Bailey of the United States Bankruptcy Court, approved the plan, which fully outlines budgets for fiscal years 2012 through 2017.
The plan ensures that all of the city's bondholders will be fully repaid for losses incurred during the city's credit crisis in accordance with Rhode Island state law passed last year. But it also slashes jobs at the municipal level and strikes a huge blow to pension plans, all while also raising property taxes.
Local authority in Central Falls was ceded to a state-appointed receiver in 2010, though the city did not officially declare bankruptcy until Aug. 2011, at which point it had incurred $80 million in unfunded pension liabilities. Local officials are expected to regain control over the city's governance as early as the beginning of January, but the final decision stands at the discretion of Rosemary Gallogly, R.I. director of revenue.
"She has to feel comfortable that the elected officials really understand the plan and that they are ready, willing and able to carry out its terms," said Theodore Orson, lawyer for the Central Falls receiver. "If they are resistant, she won't terminate the receivership."
Lawrence Goldberg, a lawyer representing some of the Central Falls City Council, said many of the council members, including council president William Benson, have had a chance to review the exit strategy, only to find that the budgets are flawed and unrealistic for the needs of the city.
For example, there is no budget within the plan allotted for the physical infrastructure of the city, he said.
"I can't conceive of what they're thinking," Goldberg said. "Things fall apart in one year, let alone six."
But retirees will be the most affected by the cuts, with some former municipal workers losing 55 percent of their promised pensions.
"For all intents and purposes, there were no negotiations," said Bruce Ogni, president of the Central Falls Police Retirees Association.
Retirees were approached with an offer and were ultimately forced to accept the cuts because of the threat of completely losing their pensions, Ogni said.
"We did all of our service," Ogni added. "We did everything we were supposed to do."
But legislation that recently passed the General Assembly provides a $2.6 million appropriation to Central Falls, which Orson said will be used to "provide (retirees) with supplemental payments for the first five years," meaning that no pensions will be cut by more than 25 percent during this preliminary period.
"People were made promises. They fulfilled their side of the promise, and they acted in good faith ... but the problem was there was no money," Orson said.
The fate of the Central Falls' retirees was used as the driving force behind pension reform across the state, including in Providence, Ogni said.
Last May, facing a $110 million structural deficit, Mayor Angel Taveras negotiated a deal with Providence's retirees for a suspension of cost-of-living adjustments, a provision within pension plans in Providence adapting plans in accordance with living standards.
Paul Doughty, president of the Providence firefighters union, said the reality of Central Falls added pressure to the negotiations as the bankruptcy "happened just down the road with similar numbers."
And Ogni said he would urge workers and retirees across the state to negotiate with their municipalities before they face a similar situation. "It just seems like once you've done your service, nobody cares about you," he added.
