At 10 am the city of Central Falls announced it would file for bankruptcy. With $21million in outstanding debt, the city has been under state control since July 2010. The "Big Ask" of retirees - that they would assent to a 50 percent reduction in their pension payments - was largely rejected (12 of 106 retirees accepted the voluntary concessions). The big question however is what will this mean for not only the municipality but for the state of Rhode Island (which is also facing a large pension liability), and other municipalities in the state with large pension and health care obligations on the books?
In some ways it sounds an alarm. Pension liabilities are in fact a massive and imminent burden on the books of many municipal and state governments. Central Falls' predicament highlights the fact that pension reform begins with an accurate calculation of the liability and proceeds with a plan for how the bill is to be paid, and how public sector retirement systems are to be made stable. These are steps that must occur years before and not months after the fact. State Treasurer Gina Raimondo highlights this in her report on Rhode Island's pension systems.
According to the state receiver Robert Flanders, everything was tried to salvage Central Falls - cuts to services and tax increases. But beginning in August Flanders plans to reduce pension benefits and is asking a federal court to reject collective bargaining agreements. Speaking with Governor Lincoln Chafee the receiver says he's working to have a plan in place to present to judge who presides over the bankruptcy proceedings. There is speculation that Central Falls may end up merging with a neighboring town.
Will Central Falls' bankruptcy filing spread financial contagion across the state? E.J. McMahon discusses the possibilities and another potential remedy. Contagion is a potential scenario but not a definite outcome. As we have seen with the Greek debt crisis, contagion and the path it takes can be difficult to predict.
According to the state receiver Robert Flanders, everything was tried to salvage Central Falls - cuts to services and tax increases. But beginning in August Flanders plans to reduce pension benefits and is asking a federal court to reject collective bargaining agreements. Speaking with Governor Lincoln Chafee the receiver says he's working to have a plan in place to present to judge who presides over the bankruptcy proceedings. There is speculation that Central Falls may end up merging with a neighboring town.
Will Central Falls' bankruptcy filing spread financial contagion across the state? E.J. McMahon discusses the possibilities and another potential remedy. Contagion is a potential scenario but not a definite outcome. As we have seen with the Greek debt crisis, contagion and the path it takes can be difficult to predict.
Central Falls is made up of minorities, welfare recipients as well as an ever growing population of Hispanic illegal immigrants. Combine this with the high crime problems and failing schools and loss of your tax base, pensions are just the first to go under.