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
New York Times
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