WASHINGTON — Seven George Mason University graduate students gathered at City Hall in Central Falls, R.I., on May 15 to ask the bankrupt city’s court-appointed receiver, former state Supreme Court Associate Justice Robert Flanders, a question.
What is an essential service for a municipality in Rhode Island?
“Pensions are not,” the judge replied. “If someone dials 911, a pension doesn’t respond.”
Flanders was among dozens of municipal and state officials nationwide who were interviewed recently by participants in the university’s Northern Virginia Fellows Program, a 12-member team of adult students who set out this spring to understand how municipalities in America have coped with financial distress.
On June 15, the group released what students say is a one-of-a-kind guide designed to help financially struggling municipalities learn how other jurisdictions coped with similar problems.
The 22-page “Financial Crisis Toolkit for Municipalities: Distress Without Default,” is available online and provides tips to help officials assess fiscal health, identify and avoid budget problems and maintain essential city services.
“A number [of municipalities] are considering bankruptcy, but ... no one has figured a away so that other cities and counties, as they are getting in trouble, can realize the benefit of experiences of other cities and counties,” said Frank Shafroth, director of the school’s Center for State and Local Government Leadership and director of legislative affairs and intergovernmental relations at the Municipal Securities Rulemaking Board.
“Every jurisdiction has experienced some degree of financial distress,” said Corey Travis, a student in the program and administrative officer in the Arlington County, Va., Department of Human Services. They “are not alone. [They] can reach out to one another to find out how [others] got themselves out of it.”
Most of the students in the program, who are studying for their master’s degree in public administration, are between 30 and 50 years old and work for the Northern Virginia counties of Arlington, Fairfax, Loudoun and Prince William.
The guide includes case studies of governments that have declared bankruptcy in recent years or faced financial calamity: Jefferson County, Ala., Stockton and Vallejo, Calif., and a number of cities in Michigan and Rhode Island.
The guide outline each municipality’s problems, and the steps officials took to try to improve financial health.
Nassau County, N.Y., faces costly pension obligations and other financial problems. It has reduced staff, suspended raises, improved financial forecasting and has plans to sell its sewer services to a private buyer, the guide says.
Vallejo, which filed bankruptcy in 2008, invested in economic development and allowed voters to decide how to spend sales tax proceeds, in exchange for accepting a tax hike.
Sections in the guide provide tips for addressing financial problems.
One includes questions officials can ask to identify financial concerns. Another includes 10 tips to keep budget problems from worsening. Among them: create long-term financial forecasts, consolidate or outsource services and consult openly with those impacted by spending cuts.
Another section helps officials identify essential city services, and those that could be eliminated or cut back. There are also tips for increasing tax revenue, boosting workforce engagement and improving a city’s “brand.”
In the course of their research, some students travelled to Rhode Island, where they met with leaders of unions and nonprofit groups, state lawmakers, and officials in cities like Providence, East Providence and Central Falls.
Central Falls had faced an $80 million pension gap, a dwindling tax base and a shrinking industrial base. It filed for bankruptcy in 2011 after the city failed to reach cost-cutting agreements with public employees and taxpayers.
Bankruptcy allowed receiver Flanders to cut taxes and slash retiree pension benefits up to 55%, moves he said led to a balanced budget and saved $30 million over five years.
The guide calls bankruptcy “a critical tool” that allowed Central Falls to maintain essential services and avoid default. It also noted that bankruptcy was controversial; many people called the cuts too drastic.
“These opposing views represent the contentious debate concerning the use of Chapter 9,” the guide says.
Shafroth recalled that during their interview with Flanders the receiver explained to the students how he arrived at his decision to cut benefits.
“He described the process he was going through and how difficult it was,” said Shafroth. “He said, 'No one represents the pensioners. I can meet with the unions ... and mayor and council members ... but maybe half the pensioners don’t even live in Rhode Island.’ ”
Flanders knew his actions would cause pain, Shafroth said, noting that these are “the kinds of choices that are going to have to be made in any number of cities and counties.”
The Rhode Island trip taught Travis that officials and others should address financial problems early to avoid the deeper spending cuts that can result from bankruptcy.
If Central Falls had “started to make difficult decisions early on, the outcome would have been different,” Travis said. “Rather than make tough decisions, they kept maintaining the status quo, which ended up being worse for everybody.”
Another student, Adrienne Quigley, 38, a lieutenant in the Arlington County Police Department, said the trip taught her the role politics and unions play in budget discussions.
She said the fellowship program opened her eyes to challenges facing many small municipalities outside populous places like those in the Washington, D.C., area.
“What I didn’t realize is that there are other jurisdictions that don’t have the resources our jurisdiction does,” Quigley said. “Maybe this [guide will] provide a little insight, and information on who to turn to if you find yourself in need of help.”
