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A Haircut Versus a Beheading

2 comments

A Little City With Big Problems

Central Falls, Rhode Island, looks headed for disaster this summer as the tiny city of 20K confronts an $80M unpaid bill for firefighter and police pension benefits. Robert Flanders, the state-appointed receiver (in itself hardly a good thing) has referred to the need for pensioners and others to engage in give-backs as a "haircut being better than a beheading."

Central Falls appears ready to follow in the footsteps of Prichard, Alabama, which recently declared bankruptcy, also over the crushing burden of pension obligations. In the case of Prichard, the end was foretold years in advance as city officials correctly forecast the demise of the unfunded pension system right on schedule.

As can be imagined, now is not exactly the time to be seeking help at the state level for fiscal problems. Rhode Island has refused to bail out Central Falls and is, itself in less than sanguine financial shape. Since the selling of municipal bonds to finance government debt is so widespread, municipalities of every size and level must ensure that their bond rating remains reasonably healthy lest they lose their ability to finance operations. Allowing Central Falls to capsize is a small price to pay.

According to the New York Times, if Central Falls were contributing the required amount to sustain the pension systems for police and firefighters, it would represent 57% of the local property tax revenue. This, of course, shines a bright light on the level of benefits for retirees which has been compared to being at the same level as much larger and more prosperous cities.

Aggravating the situation is the fact that Central Falls firefighters, like thousands of others nationwide, voluntarily do not participate in social security. Social security participation was once seen as unfair and redundant for municipal workers and they were effectively allowed to opt out. Perhaps that decision will appear unwise in retrospect as the sole source of retirement income dries up. Should firefighters who opted out of social security and now face the loss of retirement benefits be allowed to seek federal aid for their loss of benefits? That would hardly seem fair to the thousands of others who dutifully paid into social security as a back-up or secondary source of benefits.

Rhode Island has the highest per capita spending for firefighters in the nation as well as among the most aggressive labor rights. Given their state of crisis it will be interesting to see if correlations are drawn between the two.

……………. Eric Lamar

sources:
New York Times
Providence Journal

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Posted by on July 15, 2011 • Filed under: commentary, Eric Lamar • Tagged: ,
  • ukfbbuff

     What type of Retirement Program was “Supposed” to be in Place?

    A. The City would make 100 percent contributions into the System.

    B. It would be a “Shared” type, in which the City and the Employees paid into it?

    C. Who was in Charge of the Pension Plan and Where Did the Money Go that was previously in the System.

    D. Why weren’t Audits Conducted and Funding Contributions Corrected over time?

      Just a few Central Questions that DEMAND Answers!

  • Screwed!

    Answers to questions:
    1.  City was required to put in 8%, employees contributed 7%.  This was a John Hancock Private Pension, administered by the City.  John Hancock will only discuss the plan with the city, not the employees. 
    2.  The money was “budgeted” and then borrowed from before they actually sent the money into JH.  Union had legal opinions that there is nothing  could be done until someone doesnt get a check before legal action against the City.  Election cycle was every two years, therefore no politician wanted to raise any taxes.  They also never once in the last ten years asked the Unions for any concessions on pension reform or higher contributions.
    3.   Again, audits were done, recommendations never followed, City is 1sq mile, large immigrant community. twenty thousand people and maybe 2-5 people show up at City hall for budget hearings and meetings for the last 15 years. 
    4.   State cut aid to city and towns, a Federal Prison in the City that is privatly run stopped paying city any funds in lew of taxes, (was 500,000) a year. 
    5.  RI Fire Departments all run there own EMS. (per capita spending on Fire service)
    6.  City council has always been a puppet for the Mayors office, never challenge or question much.

    Fire Dept has 42 FF, operating 2 Engines, 1 Ladder, 1  Transporting EMS(Cardiac Level) and 1 Command vehicle.  9 man minimum.  About 5000 runs, roughly 60% EMS.