Bankruptcy Might be Best Solution

This may indeed be the year of cities and towns as Governor Chafee has pledged, but things may not turn out the way he intended. That’s because several municipalities are going broke, if not faster than anticipated, than sooner than state aid can arrive to rescue them. Plus, there’s no guarantee that state aid will be forthcoming, since much of Chafee’s pledge of assistance is tied to the fate of his very unpopular meal and lodging tax proposal.

East Providence has already received an early infusion of state aid to get it through the next few months. Central Falls retirees are still waiting to see if the General Assembly will allocate over $2.6 million to rescue their pensions from the haircut Receiver Judge Flanders handed them. Now Woonsocket has its hands out to the state in hopes of getting the city past April or its teachers may not get paid. (To their credit Woonsocket teachers have already made contract concessions and are even willing to remain at work, without pay, hopefully long enough to finish the school year.)

The city’s recent financial troubles include a $10 million school deficit, junk bond status, over sixty cents of every tax dollar going to pay retirees, and a very possible supplemental property tax hike coming. Sooner than Providence, Woonsocket may be the next Rhode Island municipality to go bankrupt.

And why not? Bankruptcy is a severe blow but, as Judge Flanders told a Saturday public forum on the very subject of Communities in Crisis (a position he has since elaborated on in writing), “There’s life after restructuring,” and communities would be better off getting through it. He would certainly know, as he’s the one restructuring Central Falls through its bankruptcy process. Under bankruptcy provisions a municipality is free to cut spending and make changes that it could never do under normal operating conditions with labor contracts in place. Ask retirees to agree to reduce their own pensions: under bankruptcy no such pleading is necessary. They’re simply cut, which in Central Falls reduced pension payments to a pitiful 25 percent of what they had been. No more COLA payments – gone.

Even Woonsocket Mayor Fontaine is entertaining the possibility of declaring bankruptcy. With virtually nowhere to turn to for fresh funding, and payroll demands coming every two weeks, the city may have to throw in the towel. Even if the city receives an emergency advance from the state, the situation going forward remains dire. Providence is in much the same boat, with time slipping away with the passage of each week: even if Mayor Taveras can capture most of the money he needs to reduce the city’s almost $30 million deficit, which doesn’t appear to be materializing soon enough, how does he come up with the rest? If he can’t, it’s the same outcome: bankruptcy.

Governor Chafee has just forwarded a package of proposals to the General Assembly to deliver on his pledge to assist “highly distressed” cities and towns. The package would allow mayors and city/town councils to end COLA payments, end teacher pay step increases, get rid of school bus monitors, and gain control over school budgets. It would also allow local officials to reduce disability allowances and redefine base salaries in determining retirement benefits. Whether the General Assembly will heed his call to action remains to be seen.

When distressed communities are forced to squeeze dollars out of everything in sight – taking a cue from Providence, its sister city across the Seekonk River wants to impose property taxes on its non-profits – and to do so largely to pay for retiree costs, then it begs the question whether that’s a sustainable, wise course. We know it’s not sustainable, and it’s becoming increasingly clear that it’s a foolhardy course, one that will simply drag the entire community – and state – down.

So don’t be surprised if Woonsocket and then Providence move to declare bankruptcy, as severe as that will be to both cities’ bond ratings, ability to borrow, and image. Bankruptcy, responsible people are now seeing, may be the best alternative to an otherwise year-to-year hand-to-mouth situation that lowers the water level in our little pond for everyone.

The plight of our distressed communities should force our political leadership to confront the state’s very problematical longer term prospects with 39 separate cities and towns around its neck. The state would be far better off, and given a good chance of being competitive once again with its neighbors, if it cast off parochial attitudes against major change and embraced regionalization and county-style government. That’s the best hope for our state if we want to remain a state.

1 comment:

  1. This crisis did not occur overnight as overspending, taxing and borrowing have had ample time to act as a terminal disease with only one outcome, death of the government as we know it. This is what happens when there are labor/management sweetheart deals that are in the long term simply unsustainable.

    The mention of school bus monitors brings back unpleasant memories that were, (at least to me), predictable abuses that would later exact a high toll with regard to financial resources. Just the fact that part-timers became eligible for public funded pensions borders on the absurd.

    Whatever happened to sensible practices such as when students performed crossing guard duties as a method of character building?

    With regard to regionalization and county style of government, be careful for what you wish for. Creating a county government opens up a whole new avenue for new taxes, new bureaucracies and new taxing entities. Regionalization or consolidation of school districts to conform in size with geographical counties could be a way of maximizing efficiencies IF some sort of taxpayer controls were to be put in place.

    Rhode Island has made its bed and now the art of neglect is collecting its due. Sadly, the existence of a less-than-smart electorate along with the shysters, politicians and parasites simply indicate more of the same until the whole system collapses. Of course the national picture is not much better if one wishes to have some solace.

    Will the people of Rhode Island ever smarten up? I doubt it...


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