Central Falls Receivers Cost $700k

Wednesday, July 13, 2011

Stephen Beale, GoLocalProv News Editor

The costs of the three receivers tasked with rescuing Central Falls from bankruptcy will wind up at nearly $700,000, according to records obtained by GoLocalProv.

Of that amount, just under $500,000 will have gone to the two state-appointed receivers for the city—both retired judges who have been working to turn around the cash-strapped city at a rate of $200 an hour, paid by state taxpayers. The remainder of the total, $250,000 went to the court-appointed receiver for Central Falls.

“It seems like an outrageous amount of money on a city that’s going bankrupt. They could have been more frugal,” said J. Michael Downey, president of AFSCME Council 94. “I’m surprised at that amount. That’s an awful lot.”

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Central Falls became the poster child for fiscally troubled communities when city officials declared insolvency and sought a court-appointed receiver in May 2010. Attorney John Savage took over as the court appointed receiver. But the state soon stepped in with a new law that set out a process for receivers appointed and funded by the state. Two have served so far—retired Superior Court Judge Mark Pfeiffer and retired state Supreme Court Justice Bob Flanders.

Attempt to cap costs of receivers fails

The costs for the three receivers over a year and a half break down as follows:
■ $250,000—was budgeted for the total costs of the court-appointed receiver, attorney John Savage.
■ $197,397—paid to Pfeiffer, who served from June 16, 2010 to Feb. 12, 2011
■ $120,000—the amount paid so far to Flanders, from Feb. 1, 2011 to the end of May.
■ $130,000—the additional amount Flanders can earn during remainder of his one-year contract.

The head of the Rhode Island League of Cities and Towns questioned the cost of the receivers in an interview yesterday. Executive Director Dan Beardsley said the league backed legislation that would have limited the pay of the receivers to the average salary that city and town managers receive, which is about $112,000. (The bill did not even come to a vote at the committee level in the House.)

“It’s only reasonable,” Beardsley said. “There are retired city officers with the experience at local government who wouldn’t hesitate to accept $75,000 or $135,000 on an annualized basis to try to save the city.”

Downey said news of how much receivers are earning could impact negotiations over concessions with city unions. “When people see that others are making $200 an hour and spending $500,000 on receivership, it’s hard to get people between $12 and $15 an hour to lose more money,” said Downey. (There are about 35 city workers in Central Falls who in Local 1627 of Council 94. They include everyone from snow plow drivers to the workers at the library, which Flanders recently closed.)

Are judges best?

The success of the new state law and the role of the receivers are also coming under new scrutiny as Central Falls continues to struggle financially. Despite a year of state intervention, Central Falls is on the verge of filing for formal bankruptcy in federal court, Flanders told GoLocalProv last month. Flanders said bankruptcy would be the only option if the city could not negotiate savings with its unions or receive the necessary aid from the state.

The head of the state ACLU, Steven Brown, objects to the powers that have been granted to the receivers. He said elected officials in the city, namely Mayor Charles Moreau and the city council, have been stripped of all power and relegated to advisory roles. “Our big concern is the extraordinary powers the receiver has been given,” Brown said. “It is not limited to fiscal matters. It is the complete management of the town. The residents of Central falls for all intents and purposes have been completely disenfranchised in the running of their city.”

A case in point: Pfeiffer appointed members to the Central Falls Housing Authority, which is federally funded and has no bearing on city finances, according to Brown. “It was the quintessential example of the extraordinary power the receiver had been given,” he said.

Brown said the fact that the two state-appointed receivers have both been retired judges could have made their exercise of power all the more excessive. “Judges are a different breed from most other government officials and that works very well in a judicial setting. That doesn’t necessarily flow well in a setting like this,” Brown said.

‘Doomed to fail’

Other local government experts said the issue is not so much who serves as receiver, but the limitations that are imposed by state law. “Regardless of which choice you make, the law is flawed,” said Gary Sasse, the former Director of the Department of Administration under Gov. Don Carcieri. He said the key weakness of the law is that the receiver does not have the ability to modify collective bargaining agreements.

That restriction effectively puts as much as 84 percent of the city budget off limits to the receiver, added Beardsley. “Quite frankly, I believe it was doomed to fail,” he said. “How can you deal with turning a city around when you have latitude with only 16 percent?”

Sasse said an expert in municipal finance would not necessarily have fared better in the role of receiver.. “I’m not saying someone with a judicial legal background is better than someone with experience in municipal finance. I’m saying they’re pluses and minuses,” added Sasse, who is also the former longtime head of the Rhode Island Public Expenditure Council. “I think it depends on the leadership abilities of the person.”

City manager will take over… eventually

The ability to lead could be why the state has turned to judges, said John Simmons, the current executive director of RIPEC. “Someone who is a municipal manager may not have the same stature as a retired Supreme Court justice,” said Simmons, who himself has served in the administrations of former Providence mayors Joe Paolino and David Cicilline. “When they say something, people believe it.”

Simmons said a judge may be better suited to making the tough decisions, while a city manager would be more effective in implementing them. And that’s exactly what the state plans to do, a spokesman for Governor Lincoln Chafee told GoLocalProv.

“As both Governor Chafee and Justice Flanders have stated, the recovery plan for Central Falls is to have an individual with extensive legal experience, such as Justice Flanders, guide the city through the legal portion of its recovery, including a possible bankruptcy, and then, as the legal aspects conclude, to have an experienced municipal manager take over to guide the city through its recovery,” said Christian Vareika, the Governor’s press secretary.

He added: “Governor Chafee believes that Justice Flanders is doing an excellent job working with all relevant parties to address Central Falls’ challenges, and has complete confidence in his ability to position the city well for a positive recovery.”

Flanders: ‘I’m no stranger to municipal government’

Flanders said having judges serve as receivers is preferable because of the complex legal issues involved in navigating a city through an overhaul of its finances—and potential bankruptcy. He said the challenge involves knowing the legal ins and outs of what you can and can’t do with labor negotiations, pension obligations, and sharing services with other cities. “It’s not exactly within the ken of the ordinary town manager at this point,” Flanders said.

He also rebutted the suggestion that he does not have enough experience in municipal issues. He said he had worked as the town solicitor in Glocester for 12 years and also served on the town council in Barrington. In addition, he has been the counsel to the state landfill corporation. “I’ve got a fair amount of experience in dealing with municipal issues,” Flanders said. “It’s not like I’m a stranger to municipal government.”

Flanders also won a vote of confidence from economist Leonard Lardaro, who is a professor at the University of Rhode Island. Lardaro questioned whether traditional city managers and mayors would be better suited to the challenge than a retired judge. “How good did mayors do?—Seriously,” Lardaro said.

“He’s a very capable individual. I know him. He has a record,” Lardaro added. “I trust him to do a good job.”

Flanders and Pfeiffer won praise from others who spoke with GoLocalProv yesterday. “I think they couldn’t have gotten two better people with more integrity and better skills in negotiating through this,” Sasse said.

“I have a great amount of respect for Judge Flanders,” Beardsley said. “He certainly wasn’t given the tools—neither he nor Judge Pfeiffer.”

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Central Falls City Hall Photo Credit: Blackstone Valley Tourism Council
 

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