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Will Central Falls Bankruptcy Damage RI’s Brand?

Tuesday, August 02, 2011


Bankruptcy in Central Falls will further damage Rhode Island’s already poor reputation as one of the worst states to do business and have far-reaching impacts on municipal finances beyond the confines of the tiny 1.3-square-mile city, economists and other experts warned yesterday.


“No question it’s going to make it more and more difficult for Rhode Island to change the image it has,” said Ed Mazze, a business professor at the University of Rhode Island. “What does this do? This puts Rhode Island in a worse position than it was yesterday.”

The Ocean State already has a reputation for having one of the highest unemployment rates in the country and recently came in dead last in a national CNBC survey of business friendly states, noted University of Rhode Island economist Leonard Lardaro.

“We’re becoming the poster state for what not to do—or what not to be,” Lardaro said.

Lardaro and other experts warn that the crisis in Central Falls could have a sweeping and lasting impact across the state—scaring away investors and businesses, potentially making it more difficult for cities and towns to borrow money, and putting more pressure on elected officials and unions to reform public pensions at the local and state levels.

A damper on economic development?

Mazze said the “shakiness” in municipal finances is a deterrent to investors—a concern heightened by Central Falls. “This will be another bad mark on Rhode Island,” Mazze said. “This does have an impact on our ability to attract and retain business.”


“I just don’t think we’re exactly presenting a compelling reason for people to come to us,” Lardaro added.


But not everyone thinks that bankruptcy is automatically a bad thing when it comes to bringing business into the state. Governor Lincoln Chafee told GoLocalProv that the bankruptcy filing could be a “positive” move for economic development by sending the message that Rhode Island is serious about addressing its financial problems.

Eileen Norcross, a scholar at the Mercatus Center at George Mason University, said businesses might avoid those communities that have unfunded pension liabilities and other fiscal problems similar to Central Falls. “It may make people leery of moving to that municipality or doing business in Rhode Island,” said Norcross, an expert in public policy and economic development.

But, like Chafee, she said the state’s intervention in Central Falls could also be a positive sign to the business.

Gary Sasse, the former Director of the Department of Administration under Gov. Don Carcieri, expects that businesses will take a wait-and-see approach. “It’s not going to fly under the radar,” he said. “If the receiver presents a plan in the next 30 days that corrects the problems, businesses will know.”

Wake-up call on pension reform


The other big implication of bankruptcy in Central Falls is in the arena of pension reform. “This Central Falls situation could very well be the tip of the iceberg and we better start working on what’s under the tip of the iceberg,” Mazze said. “This is a wake-up call.”

General Treasurer Gina Raimondo yesterday signaled that she is heeding that wake-up call, issuing a statement that she is more determined than ever to push for pension reform.

The Rhode Island Statewide Coalition said that same urgency is needed at the local level, describing an estimated $7.6 billion total in unfunded liabilities in cities and towns as a “ticking time bomb” that must be addressed now that Central Falls has “gone under.”

“What has happened to Central Falls should vividly demonstrate to all elected leaders that the mountain of unfunded liability in local pension plans can—and will—topple communities if they are not addressed this year,” said Harriet Lloyd, executive director of RISC.

It’s unclear how retired government workers will react. While Central Falls is certainly an attention-grabber, the head of one of the state’s largest public employee unions doubts that they will be more willing to accept cuts to their benefits as a result. “I don’t see a day when somebody’s who’s already retired will feel good about cutting their pension,” said Michael Downey, head of AFSCME Council 94.

“I think they’re going to fight as hard as they can,” Mazze said. “Even though half is better than nothing, half is not enough.”

Cranston Mayor Allan Fung, who sits on the pension advisory panel for Raimondo, said it’s just too early to tell if retirees will heed the wake-up call of Central Falls. “I don’t know,” Fung said. “It’s just difficult to say right now.” He said he nonetheless remains “cautiously optimistic” that the state will pass meaningful pension reform by the end of the year.

Third impact: ability to borrow money

Bankruptcy in Central Falls could also affect the ability of cities and towns to borrow money at favorable rates, Fung warned.

Lardaro said it will make it harder for the state and fiscally troubled communities like Providence to maintain their existing bond ratings. “It’s not going to cause an instantaneous downgrade but it will be another negative that will be in the back of rating agencies’ minds,” he said.

Even though Raimondo said she does not think the state will have difficulty accessing bond markets, Ken Block, a business advocate and head of the Moderate Party, noted that when New York City declared bankruptcy in 1975, New Jersey had a harder time selling its bonds. “It was sort of guilt by geographic proximity,” Block said.


More bankruptcies to follow?

Central Falls is the fifth municipality to file for bankruptcy this year—but the first in Rhode Island history, according to Robert Flanders, the state-appointed receiver for the city.

Yesterday, Mayor Charles Moreau predicted that it won’t be the last. “You’re going to see it a lot more often,” Moreau said. “You just go down the list—Pawtucket, Woonsocket, North Providence, East Providence, West Warwick, Providence.”

Block agreed that more bankruptcies could be in the state’s future. “A municipal bankruptcy—I don’t think it’s likely a singular event,” he said.

Lardaro said it’s possible other cities will follow suit. He said that all depends on whether Providence will be able to make payroll this fall—even though city officials have said that under the new budget they are confident they will.

In Pawtucket, Mayor Don Grebien said he had been working hard every day since taking office earlier this year to prevent a repeat of Central Falls in his city. The bankruptcy filing, he said, adds “even greater urgency” to his efforts, but he remained confident that Pawtucket could avoid it. “Those efforts to right our fiscal ship will continue unabated and I am confident we will be able to tackle and solve our problems and retain control of our own financial future,” Grebien said.

Fung is highly skeptical that another city could turn to bankruptcy. While it is true that other communities like Cranston have unfunded pension liabilities that are comparable, in terms of percentages, to Central Falls, he said it was a whole host of other factors that sunk Central Falls—such as cash flow issues and an insufficient tax base.

“We have a pension problem, but we’re far … away from where Central Falls is,” Fung said.

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RI HAS A BRAND???? A BRAND?? who writes these headlines..someone's kid??
if it does have a "brand" perhaps it is smiling mayors like the 2 "stars" shown above...NOT

Comment #1 by Buc Kner on 2011 08 02

It should force cities and towns to stop borrowing money....its quite evident they can't afford to pay it back. They are taxing the residents out of their houses. RI is a crappy place to do business corruption is rampant, taxes are ludicrous, the schools suck and the list goes on and on and the politicians are worried about borrowing money FN morons!!!!!

Comment #2 by happy harry101 on 2011 08 02

Thanks Mayor Fung for raising my taxes. AGAIN!!!!!

Comment #3 by Jade ellis on 2011 08 02

I agree with the notion that Rhode Island's brand has been tarnished by the bankruptcy of Central Falls. Across the nation consumers might pick one of the very few products manufactured in our fair state and say, "Wait a minute. This is stamped,'Made in RI.' Isn't that where that tiny city went belly-up? Put it down, Edna!"

Comment #4 by Brent Luchmann on 2011 08 02

Brent, Edna might have beaten you to the punch a long time ago. Example, Edna might have went to purchase a Mister Potato Head at Toy's R' Us and put it back on the shelf telling Abner they moved out of the Broad Street plant for Mexico a long time ago.

Comment #5 by Jade ellis on 2011 08 02

What comment one said. Plus, does anyone on this e-rag ever proofread?

Good to know that "The Ocean State"...[has one of the highest unemployment rates] in the [STATE ] and recently came in dead last in a national CNBC survey of business friendly states, noted University of Rhode Island economist Leonard Lardaro.

If Beale is the local news editor, it's hard to imagine what the stringers actually write...and easy to see why our "rap" ( surely, you mean rep) is so bad.

The very idea of a state or any gov't being a commercial brand is totally appalling and off point. Governments are supposed to have a purpose which, sadly ours--at all levels--no longer do.

Comment #6 by Nancy champ on 2011 08 02

Rhode Island has a brand? That's too funny, because we are already at the bottom of the list, I suppose only thing left is to sink into the ocean! We knew this news about CF was coming and we know other towns will follow. I believe this is what we need in Rhode Island, because we do not have the time for each election to come and go to see if we get enough conservative elected to make a difference. RI reminds me of watching Animal Kingdom on TV, when the pack of wolves attack a deer once they pick the last shred of meat off the dead carcass, they move on to more prey! The unions will be like the wolves and move on to more prey in other states once the red meat is all gone! Bankruptcy is the answer!

Comment #7 by Stephen DeNuccio on 2011 08 02

The two most used words in this article is 'pension' and 'reform'.

This remedy has been talked about for years, especially in the last two, and yet has been largely ignored by the general assembly to fix their problems and the 'contract law' in the state laws.

When does this matter to those who run the pensions, the union leaders that suck dues from the workers roles and when do the people of this trashed out state get outraged?

I don't see enough people getting outraged over anything.

Comment #8 by Roland Lavallee on 2011 08 02

John, be clear. The 70+ years of lib leadership were under the rule of Democrats. The party of we'll take everything you got and give it to people who don't want to work and unions.

Comment #9 by Roland Lavallee on 2011 08 02

just curious... how many illegal children are in cf school system? maybe if the city doesn't have to pay for them, maybe they could possibly pay their retire workers... just a thought.

Comment #10 by cherie cole on 2011 08 02

this is a template for fixing rhode island ...put each and every town into receivership and renegotiate all contracts, eliminate colas, reduce or eliminate survivor annuities, increase health care co pay, create new plan for new hires.....

Comment #11 by michael riley on 2011 08 02

Cherie, the group I belong to has been shouting that from the rafters that we are educating the children of ILLEGAL ALIEN parents the broke our laws but yet we reward them with an education because of some stupid law set forth by our Federal government.

Comment #12 by Roland Lavallee on 2011 08 02

Mazze and Lardaro are always on the media scene to critique and criticize the findings....kind of like CSI showing up on the murder scene after the deadly deed has been done. For once, can we require academics offer up real solutions and help to IMPLEMENT them for society? Implement being the key word/phrase here. These guys are the "cultural morticians" of RI's demise and it is quite sad. When was the last time they rolled up their sleeves and tried to create change here, met with leading entrepreneurial and student talent, or just contributed and not critiqued. The answer class is: NEVER. Every time I see their names in a piece like this I usually stop reading and move on to something that has more weight or substance behind it....enough of these "Blues Brothers" and time time to contribute to better policy and calling out those (like Sen. Paiva Weed and others) who are fighting it all the way!

Comment #13 by a c on 2011 08 02

Retired Policemen and Firemen losing almost all of their hard earned pensions and your worries about Rhode Island's reputation? This is disgusting. Those men and women risked their lives to protect this community. Help them instead of wondering what California thinks of us. Ridiculous.

Comment #14 by Matt Netto on 2011 08 02

Well said Matt!

Comment #15 by a c on 2011 08 02

@Roland..the" group you belong to "..which one?...anarchists, hoodlums, haters or just good old pain in the a$$es...just say it "the tea party" aka "the haters", "the punks" starting w/Lisa Blais who would have trouble finding her way out of a paper bag
@Denuccio: just put on your music grinders outfit, pump up some balloons and LEAVE..you started trying to chase Prov College off Admiral, Eaton 7 Smith st> that was some success..NOT> then you fell into a race against Kenny "19th hole" carter & your "girl" won it..a deceased person could have beaten that RELIC..now you approach meetings & talk radio like you are Carville or Murphy!! GO AWAY

Comment #16 by Buc Kner on 2011 08 02

Buc Kner, nice name considering the guy let things go through his legs.

You're a nasty individual, aren't you?

I can assert that I don't belong to any group that are anarchists, hoodlums, haters or just pains. Have you met Lisa Blais? She is quite the smart individual that inspires hope for this sinking state called the Titanic II.

I question your ability to communicate effectively.

However, we all have our opinions and each see our own as valid.

I do not see how introducing Rep. Doreen Costa into the mix as anything remotely tied to the Central Falls bankruptcy situation.

Be that as it may, have a nice day.

Comment #17 by Roland Lavallee on 2011 08 02

I"m nasty..any mirrors in your house or in "YOUR GROUP"??
I have seen Ms Blais in action..need I say more..she's a hater, an extraordinary one at that. I communicate at the level required..in your case, that's curb level, just above the storm drain.
As to Ms Costa..I brought her into this discussion w/regards to the "Tooth Fairy" aka Paul Begalia, James Carville,& Mike Murphy united. I have the ability to note that NK &CF; are totally unrelated but DeNuccio has joined them via hate, disdain & his brazen critique of the state..ALL THE TIME..nothing except him is worth anything in RI.
My day is made just standing up to you & your fellow anarchists.

Comment #18 by Buc Kner on 2011 08 02

We are in this mess because elected officials and union leaders alike brokered deals they knew the taxpayers could not keep.

Today the "fix" is simple. Union members can agree to get something - or they can get nothing via bankruptcy. Neither the towns nor the state can afford to pay unreasonable pensions and benefits.

The quicker we address this the better the state's financial outlook, and the more revenues we might see - revenues essential to affording even less lucrative pensions.

Everyone has known this was coming for a long time. The recession sped things up, but no one is surprised.

I hope the union members learn a lesson from this - you can have something, or nothing, but you will not see the lucrative pensions based on promises your leaders knew could never be kept.

Comment #19 by Swamp Yankee on 2011 08 02

Zzzzzzzzzzzzzzzzzzzzzzzzzzzzzz! "When I am Kicked in the Rear, it's because I am in front"

Comment #20 by David Deuteronomy on 2011 08 02


The sad news is yes, police officers and fire fighters are losing their hard earned pensions. I don't think anyone relishes in that. If you are in that position you need to blame your GREEDY union leaders. They are the ones that bought all of the democrat politicians that drove the ship that is sinking. Connect the dots... Perhaps if you had some balance in this state and their were more Republicans elected you wouldn't have had greed drive the system. Your union leaders should be apologizing to you! Your greedy elected Democrats who have ruled for 7 decades also owe you an apology! Now let's see if the same mistakes keep getting made and your brothers union dues keep going to the same incompetents to keep them in office.

Comment #21 by jack flash on 2011 08 02

I'm sick and tired listening to how the Fire and police dept. members risk their lives for us every day. Neither profession is listed as the riskiest job in America in fact garbage collector ranks higher on the list. http://jobs.aol.com/articles/2011/03/01/top-10-most-dangerous-jobs/. This is the tactic used to score the ridiculous salaries and pensions they have been getting. Public service was never designed to pay better than the private sector this was done by the crooked politicians the unions backed them for more of the pie and both turned a blind eye, no the members pay the price.

Comment #22 by happy harry101 on 2011 08 03

Wow Harry, comparing the risks of being a garbage man to the risks of being a police officer in Central Falls? Nice to see you believe every study that you read. I'd take the risk of throwing my back out over the risk of getting shot in the head any day. Not sure what the train of thought is on that one. Easy to say from your perch up high.

Comment #23 by My Opinion on 2011 08 03

Commenting is not available in this channel entry.