Central Falls, Rhode Island provides an example of what happens when a government unit runs out of money, totally, completely and finally. “The major problem is the city, with an annual operating budget of about $16 million, is facing about $32 million in promised after-retirement health-insurance costs in addition to the $48 million in pension obligations.” For a city with 19,000 inhabitants, being in the hole $80 million is serious business, especially when it gets deeper by $4.8 million each year.
They’ve tried everything: a proposed merger with Pawtucket, which itself has budgetary problems, failed. The city’s schools have already received $604 million since 1991 from Rhode Island, only to wind up with the schools are among the worst in the state. Mayor Charles D. Moreau and his councilmen have dug such a hole that there’s no way out. The New York Times says that to hear Moreau tell it, he’s the victim.
Mr. Moreau, a Democrat serving his fourth term, has not set foot in City Hall since July 19, the day that a state-appointed receiver took control. The state police knocked on his door that morning, he said, demanded his city-owned car and cellphone and keys to City Hall and handed him a letter announcing that his salary of $71,736 was being cut to $26,000. His role was now advisory, he was informed.
“I was told they’d call if they needed me,” Mr. Moreau said recently in a rare interview. “They haven’t called since.”
Maybe the call, when it comes, will be in connection with a corruption investigation. “Mr. Moreau is the subject of a state and federal corruption inquiry involving his hiring of a friend to board up dozens of abandoned buildings in town for about $2 million. The friend, a contractor, also installed a new furnace in the mayor’s house in 2009, according to The Providence Journal, possibly charging less than it was worth.” The contractor charged $6 for installing the furnace, less than meal at many fast-food outlets.
But Mayor Moreau hardly sees what the fuss is about. He’s suing the state for violating his civil rights and he’s preparing to run for a 5th term.
Mr. Moreau, 47, is suing the state, asserting that the law allowing the takeover of financially troubled cities violates his constitutional right to due process, among other things. He appealed to the Rhode Island Supreme Court after losing the first round and is awaiting a ruling. Meanwhile, the blunt-talking mayor is working at his brother’s real estate office, down the street from City Hall, and stewing about the situation he finds himself in. He has rebuffed calls to step down and, in fact, said he was already planning his 2013 re-election campaign.
“My bumper stickers are ready to be printed,” he said. “I’d win re-election with 90 percent of the vote if the election was today.”
The residents may well vote him in by 90%, but not if they have to pay the bill. They are resisting a 10% property tax increase proposed by the receiver. But boy, they’ve got bills. Central Falls pension and retirement liabilities are 80% unfunded, the worst in a state where a similar crisis is epidemic.
Now, the total unfunded liability for both state and local systems stands at $11.3 billion, an increase of $2 billion from just one year ago.
The new numbers underscore the need for pension reform not only at the state level, but across cities and towns, said General Treasurer Gina Raimondo, who has warned that the looming pension debt is one of the single greatest threats to the recovery of the state economy.
In other words, the city has to write checks without funds. Given the resistance to tax increases, one option is for Rhode Island to do a “Walker” — get the public pensions to take a cut. “Governors and mayors around the nation — from California to New York — are trying to curb pensions for unionized workers but the benefits often are protected by law.
“While we expect the city to seek expenditure relief through negotiated concessions with current employees and retirees, it is unclear how successful these negotiations will be or if any negotiated settlement will be sufficient to close the projected (pension) shortfall,” Moody’s said.
Good luck to them. Meanwhile Central Falls tied increasing its motor vehicle excise tax but “unexpected expenses, including overtime and the receiver’s compensation” severely reduced the amount of money collected. Now, to make things worse, Moody’s has downgraded the city’s credit rating, forcing it to pay for for its debt.
Central Falls is only one of many governments that is heading into bankruptcy. Others have already gone over the cliff. Pritchard, Alabama has the dubious honor of already being the first town to completely default on its pension obligations. The New York Times reported in 2010 that its former employees are being found dead in houses without electricity or water.
Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.” …
And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow. …
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
Many cities and states are struggling to keep their pension plans adequately funded, with varying success. New York City plans to put $8.3 billion into its pension fund next year, twice what it paid five years ago. Maryland is considering a proposal to raise the retirement age to 62 for all public workers with fewer than five years of service.
Illinois keeps borrowing money to invest in its pension funds, gambling that the funds’ investments will earn enough to pay back the debt with interest. New Jersey simply decided not to pay the $3.1 billion that was due its pension plan this year.
Colorado, Minnesota and South Dakota have all taken the unusual step of reducing the benefits they pay their current retirees by cutting cost-of-living increases; retirees in all three states are suing.
No state or city wants to wind up like Prichard.
When something can’t continue indefinitely, it won’t. Public officials can keep winning terms, but only to govern over a wasteland. Still it is enough for some. “And even in Atlantis of the legend the night the seas rushed in, the drowning men still bellowed for their slaves.” If you have to drown, do so in style. The last epitaph will be: “they died with their campaign stickers on”.
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