CENTRAL FALLS, R.I.—The state-appointed receiver overseeing Central Falls said Tuesday he is in a "firefight" to right the city's finances and asked retired police officers and firefighters to accept voluntary -- and significant -- pension cuts to help avoid municipal bankruptcy.
Robert Flanders Jr. told retirees during a meeting at the high school that $2.5 million in pension and health benefit concessions are necessary "to prevent the city from going over a financial cliff."
"We're in a firefight here to make it to the finish line before we run out of cash," said Flanders, a retired state Supreme Court justice.
The city of 19,000 residents, about a 15-minute drive north of Providence, faces $80 million in unfunded pension and benefits obligations and an estimated $25 million in deficits over the next five years.
An annual reduction of $2.5 million is peanuts compared to the overall budget deficit and pension liabilities. That means there will need to be others who lose, like bondholders, employees, and maybe tax payers via higher fees and taxes. Otherwise, bankruptcy is just around the corner.
Under the plan proposed by Flanders, some retirees would see their pensions cut nearly in half. A public-safety employee who retires at age 55 with 30 years of service, for instance, currently gets a pension of just over $40,000. Under the receiver's proposal, the employee would receive $21,200.
No pension would be reduced by more than 50 percent, and anyone with a pension under $10,000 would not see a reduction, officials said.
Wage deflation alert: Muni budget deficit resolution will require many to lose income in a variety ways. For retirees, it's going to be a direct hit on annual income, and in cases like this, it could be huge! That doesn't bode well for the economy nor real estate should this trend spread!
Without significant concessions from the retirees and other groups, including unions, Flanders said bankruptcy is a "much more likely" option, as the city needs to find a savings of $5 million to $6 million somehow.
Flanders has no authority, as receiver, to impose the cuts unilaterally. But Flanders urged the retirees to accept the proposal, warning that the changes -- or even more drastic ones -- could be imposed by a federal judge if the city goes into bankruptcy.
"Better to take something rather than nothing," he said. "...Those benefits are unaffordable for the city of Central Falls."
A judge would also have the power to void existing union contracts.
With no authority to enforce cuts as a receiver, chance are he gets nothing of significance done. We could easily see retirees balk and we end up in front of the judge in bankruptcy.
Retirees will be asked to vote, by paper ballot, on whether they would accept the concessions. Flanders said they will receive information packets in the mail soon and should return them within 7 days.
A vote to approve the cuts would not necessarily have to be unanimous to go ahead with the plan, Flanders said.
"Obviously, if we don't get close we're not going to be able to pursue this option," he said.
Michael Long, who retired on a disability pension after 11 years with the police department, said during the question period that it seems like retirees are being asked to make a disproportionate sacrifice.
"Where is the fairness in this?" he said.
He said he would prefer to "take our chances" before a judge rather than accept the proposed cuts, prompting many retirees to stand and applaud.
Connie Doran, whose late husband Raymond was a firefighter in Central Falls for 33 years, said she hopes the pension benefit won't be cut.
"I hope I don't lose it," said Doran, 80, who now lives in South Attleboro, Mass. "I wouldn't be able to keep up the house."
She knows the city is trying to fix its financial woes but said, "They should have done that a long time ago."
Don't expect a yes vote! There's no way people in mass are going to voluntarily give up that big a chunk of income, at least not voluntarily. Otherwise those currently working union employees would have given up salaries and benefits.
If the receiver does end up filing for bankruptcy protection under Chapter 9, Flanders said he hopes the process will not drag out. Officials would expect to go into it with a plan of recovery.
"Our plan is to try to get in and out of this bankruptcy sooner rather than later," he said.
He would not speculate on the cost of a bankruptcy, though Vallejo, Calif., which filed for bankruptcy in 2008, spent millions during its proceeding.
Flanders would not predict the outcome of the retirees' vote.
"I'm not good at prognosticating," he said.
Bankruptcy is probably the right choice for Central Falls because the receiver is not going to get all the concessions from all the groups in time!
The most interesting part of this, is the tough push to get retirees to take less. In bankruptcy, it's likely they get less, but the question is would it be so severe, 50%?
The big item is if the vote did turn out to be yes on behalf of retirees, we could see municipalities around the country attack retirees with similar proposals.
Pre-bankruptcy or in bankruptcy, pubic union retirees face less income at some point.
Hope all is well.
J.D. Rosendahl, Rosey