“State action is required if the city is to avoid fiscal collapse in its immediate future,” receiver Mark Pfeiffer wrote in the report. “Reform measures pertaining to pensions, retiree health benefits, and collective bargaining agreements included in this report will not be sufficient to restore the city to long-term health.”
Because those steps would not be enough, Rhode Island should subsidize the annexation of Central Falls by the adjacent city of Pawtucket. Failing that, the ailing city should pursue the “regionalization” of services such as fire and police with a neighboring municipality, possibly under a new government structure with a professional municipal manager, according to the report.
In a conference call Thursday with reporters, acting director of the state Department of Revenue Rosemary Booth Gallogly said that bankruptcy would be a last resort.
“Our goal is to make sure that all of our municipalities have access to the capital markets and that when [general obligation] bonds are sold or other debts are sold that bondholders can feel comfortable that the municipality is going to make good on those,” she said.
The report suggested that Rhode Island could enact a law to establish a statutory lien to protect bond and note holder interests in the event of bankruptcy. Gallogly was tapped to be revenue director by Gov.-elect Lincoln Chafee who will inherit the Central Falls situation in January.
The city faces an $80 million unfunded pension and retiree health care benefit liability that it cannot fund through efficiencies or additional revenue, the report said. Compounding the problems, anticipated revenue from the Donald W. Wyatt Detention Center has not materialized.
The city also has to deal with a $2.1 million deficit for fiscal 2010, which ended in June. One solution would be to sell bonds to cover pension liabilities and the deficit, but some kind of state support or guarantee would likely be required to make the bonds marketable.
“The state might be willing to look at some kind of some support in terms of the issuance of the pension obligation bonds or the structuring of that only if it was going to result in structural financial stability,” Gallogly said.
Cumulative deficits over the next five fiscal years could total as much as $25 million for a city whose fiscal 2011 budget is $16.8 million, the report noted.
Central Falls, which has a population of 18,928, went into judicial receivership in May after projecting a $3 million shortfall in its nearly $18 million fiscal 2010 budget, along with a $5 million budget gap for fiscal 2011. The city’s $23.4 million of outstanding GO debt was subsequently downgraded to junk by Standard & Poor’s and Moody’s Investors Service.
Those developments prompted state legislators to enact a law preventing municipalities from going into receivership on their own and establishing a system for state intervention in fiscally distressed cities and towns. In July, Gov. Donald Carcieri appointed Pfeiffer, a retired state superior court judge, to take over the city’s finances and government.