Cruel, Cruel Summer
Thursday, July 14, 2011
The calendar has brought us to the season of drought, and the news cycle is usually no exception. But not this July. Government debt, a possible federal default, and the looming prospect of Rhode Island’s first municipal bankruptcy are crowding the headlines. It’s the opposite of vacation time when there is round the clock work going on from the most powerful halls of Washington, DC to the aging City Hall building in Central Falls to contain runaway debt and pension fund depletion.
It is a striking spectacle to see fiscal teams employed by the President and Congressional leaders conduct marathon meetings to reach consensus on a debt and spending reduction plan in mid-summer to ensure the U.S. government does not wake up to an overdrawn bank account on or about August 2nd.
Meantime, the Honorable Judge Robert Flanders, as the receiver for the fiscally drained Central Falls, is keeping one seasoned hand on the wheel as best he can while sounding the alarm with the other. He is also keeping an eye on August with the prospect of a bankruptcy filing becoming more and more possible as soon as next month. Flanders is seeking about $5 million in budget cuts and he needs them fast. Negotiations with city unions are continuing in an effort to trim down present contracts.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTBut what the receiver really needs is the ability to make cuts to pension obligations, something that the state’s receivership law, rushed through last year, won’t allow him to do. (The tiny city owes $80 million in pension benefits which seems very unlikely to ever be met.) Ironically, the state’s receivership law itself, clearly intended by its sponsors to safeguard pension benefits from being changed, could end up being the catalyst for a reduction in benefits across the board if this ends up in the hands of a judge in bankruptcy court. By denying Flanders the flexibility to amend retirement benefits, the receivership law has had the effect of eliminating a critical option in cost savings that could perhaps salvage the city from bankruptcy.
Though it’s mid-July and much of Rhode Island is vacationing in coastal locales far from inner city Central Falls, no one in the state is going to be immune from the ramifications of its bankruptcy. Furthermore, there are plenty of indications that though Centrals Falls may be the first, it may not be the only municipal bankruptcy—and pension fund depletion—this state may be about to experience. Judge Flanders has warned that without the city having the ability to make a $3.4 million dollar pension contribution now, the pension fund will run out of money this October.
If you think depleted pension funds can’t happen, and pension checks can’t stop being issued, you need to look to Prichard, Alabama. A financially depressed small city. A municipality with a bleak housing market. A scant local business sector. A high—and unfunded—retirement tab to public sector retirees. The warnings had come that its woefully underfunded pension plan would run dry and in 2009, the Alabama city became the first U.S. municipality to flat-out exhaust its pension fund and simply stopped issuing the pension checks. That set off a domino effect of court challenges and tangled bankruptcy proceedings that left scores of modestly living elderly retirees stuck in the middle without any retirement funds.
Hopefully the receivership process now underway in Central Falls can ultimately avoid a Prichard-style disaster. However, Rhode Island’s own capital city, and a few others may not be far behind if the serious work of cost cutting and pension reform do not produce real and meaningful change to the scope of the benefit, and most critically when a retiree can start collecting the benefit. The entry point for collecting a pension is perhaps one of the most critical across-the-board changes that needs to be addressed in the wider pension reform process getting underway this summer. The state in general and local communities in particular, cannot sustain 40-something year old retirees collecting a full pension and health insurance.
Treasurer Raimondo launched this summer’s pension reform process by posing the question, What should a reasonable retirement plan look like? Central Falls and Prichard, Alabama need to be kept in mind as her pension advisory panel begins its work in formulating an answer. In fact, if those pension advisory panel meetings need a soundtrack playing in the background, perhaps it’s time to dig out that ‘80’s Bananarama anthem to heat wave days. It’s a "Cruel, Cruel Summer" indeed.
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Donna Perry is a Communications Consultant to RISC, RI Statewide Coalition www.statewidecoalition.com
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