In The New York Times, Mary Williams Walsh and Abby Goodnough report that Central Falls, R.I. is perilously close to filing for bankruptcy. The primary cause is the city's John Hancock plan pension system put in place in 1972 which has promised to pay out $80 million in benefits for 214 police and firefighters.
Central Falls has been in state receivership for a year and its pensions are slated to run out of assets in October. For an analysis of Rhode Island's troubles see Steven Malanga's recent article at Real Clear Markets.
Rhode Island isn't in a position to bail them out - consider that Central Falls is one of several Rhode Island cities in fiscal trouble. As a pre-emptive measure on July 1 Rhode Island passed legislation to give GO Bonds legal priority over other types of debt payments, including pension payments, in order to reassure investors.
Collective bargaining at the local level puts everything on the table. The plan - like all state and local plans - has systematically undervalued the size of pension promises, leaving small towns with larger-than-anticipated bills relative to their tax bases.What happens next will surely test the state-local-federal relationship over matters of bankruptcy and bailouts.
Rhode Island isn't in a position to bail them out - consider that Central Falls is one of several Rhode Island cities in fiscal trouble. As a pre-emptive measure on July 1 Rhode Island passed legislation to give GO Bonds legal priority over other types of debt payments, including pension payments, in order to reassure investors.
Collective bargaining at the local level puts everything on the table. The plan - like all state and local plans - has systematically undervalued the size of pension promises, leaving small towns with larger-than-anticipated bills relative to their tax bases.What happens next will surely test the state-local-federal relationship over matters of bankruptcy and bailouts.
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