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Web Exclusive: Politics as Usual (Opinion)

December 26, 2010

It is small, and its residents are poor, but Central Falls has always maintained a unique identity and its people have persevered with the stubborn, defiant pride of the underdog. That demands respect.
Central Falls should not be abolished.
Central Falls should not become another neighborhood of Pawtucket.
Central Falls should not be split up among its neighbors like a family of orphaned children.
Central Falls should be saved.
But how?
With all due respect to Mark Pfeiffer, the state receiver, it should not be devoured by its bigger and only slightly less poor neighbor, Pawtucket.
That won’t happen anyway, for a variety of reasons.
One is that, barring an arrogant and perhaps unconstitutional show of force by the General Assembly and the incoming Chafee administration, “annexation” -- to use the sterile term in the receiver’s report for holding a pillow over the face of a proud community -- would require a referendum of the voters in both Central Falls and Pawtucket. It would never fly in either community. Central Falls voters have too much love for the place where they live to approve it, and already beleaguered Pawtucket taxpayers have zero interest in adopting the financial problems of their troubled neighbor. Remember back a decade or more ago, when the state was doling out huge financial incentives for school districts to regionalize? A proposal to merge the Central Falls and Pawtucket systems was put on the ballot at that time and Pawtucket voters dealt it a crushing defeat; they wanted no part of it.
Pawtucket has plenty of problems of its own to deal with. They could very well find themselves in the near future being the second community where the new state receivership law is applied.
When asked for his reaction to the receiver’s report, incoming Pawtucket Mayor Donald Grebien spoke for several minutes about the various ramifications and issued a somewhat lengthy written statement. Frankly, that surprised me. I expected Grebien to have a two-word response to the receiver’s proposal, the second word being “you.” Then again, the mayor-elect is more gracious and diplomatic than I.
And what do we do when Pawtucket, having absorbed Central Falls’ problems, goes down the hole itself? Do we have Providence take over the combined Pawtucket/Central Falls? What happens when that monster fails, perhaps taking the whole state down with it?
How does any entity deal with a situation where its debt has gotten so far beyond its means that it has no hope of becoming solvent? It declares bankruptcy and a federal court works out a reorganization of its finances that allows it to shed some or all of its debt load and move forward.
Distasteful as it may seem, bankruptcy is the answer here. It is Central Falls’ bad debt that should be written off, not the city itself.
The fear is that the bond and financial markets would go apebleep at such a move, and the other communities in Rhode Island and perhaps the state itself would find themselves unable to borrow money, or could only do so at interest rates that would be prohibitive.
God forbid that the bond markets be rattled, but bonded indebtedness is not Central Falls’ problem, its unfunded pensions are. Even in bankruptcy, Central Falls could arrange to pay off its bonds in full.
The city’s insoluble problem is its unfunded pension obligations.
When private corporations go belly-up and can’t meet their pension obligations, the Pension Benefit Guarantee Corporation, an entity of the federal government, steps in and protects the interests of the retirees. Why couldn’t the same thing be done for Central Falls? Have PBGC absorb the unfunded – to the tune of $46 million -- John Hancock pension plan for police officers and firefighters that the city will never be able to pay out anyway and put all employees from this point on into the Municipal Employee Retirement System that requires communities to keep reasonably current in funding their pension obligations. The police and fire unions would surely agree to this; it would be foolhardy of them to insist on holding on to a stand-alone pension plan that pretty soon won’t be worth the paper it is printed on.
According to the PBGC website, an underfunded pension plan can be eliminated by means of a “distress termination.” To do that, “the employer must prove to a bankruptcy court or to PBGC that the employer cannot remain in business unless the plan is terminated.” Well, that sounds pretty much like what Pfeiffer said about Central Falls. “If the application is granted, PBGC will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds.”
That would give the city the clean start it needs to stay in existence and adopt stricter fiscal discipline going forward.
A key component of that, as Pfeiffer said, would be regionalization of services.
Public officials, good government types, and taxpayer groups have talked and talked and talked and talked and talked about regionalization, but everybody seemed to know somewhere in the backs of their minds that, this being Rhode Island, it wasn’t going to happen until some crisis finally forced us to move forward with it.
Well, here’s your crisis.
Central Falls’ financial debacle could be the impetus for developing a regionalization plan, not just among Central Falls and its neighbors, but for all 39 municipalities in Rhode Island.
Mayor Charles Moreau said in response to the receiver’s report that Central Falls could be a pioneer, showing other troubled communities the way out of the fiscal wilderness. Well, wagons ho!
Why wait for Pawtucket to fall to a similar fate, followed by Woonsocket, then Providence, then North Providence, then who knows which municipality will be next?
Regionalize local services – most certainly including schools -- into a few county-type governments (but not the five awkward and unwieldy counties we sort of have now) and fund them with an income tax, eliminating completely and forever the onerous and odious property taxes that are Rhode Island’s real problem with overtaxation.
The receiver recommends consolidating all the independent pension plans across the state into a single statewide system, that would be a nice first step in regionalization.
Another really good idea in the receiver’s report is a state takeover of the Wyatt Detention Facility, not only because it is in just as bad a financial situation as Central Falls itself, but on the general principle that privately run prisons are a BAD idea, for more reasons than I have space to list in this essay. Just one example given in the Pfeiffer report: Why should the CEO of comparatively tiny Wyatt receive a salary (a whopping $233,000) one-and-a-half times the size of the salary earned by the Director of Corrections, who runs the sprawling and far more difficult to control (and much better run) ACI?
As Pfeifer noted in last week’s press conference, something needs to be done, it needs to be done in the General Assembly among other places and it needs to be done quickly.
Let’s hope the General Assembly does something quickly about the Central Falls situation but, more importantly, let’s hope it does something right.

Merry Christmas to all readers of Politics as Usual, and if you happen to go past one of those red Salvation Army kettles this week, throw a few bucks in; those people do good work.

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