The state-appointed receiver running Central Falls, R.I., introduced his five-year reorganization plan for the bankrupt city on Thursday.
Retired Rhode Island Supreme Court Justice Robert Flanders Jr., in a filing with the U.S. Bankruptcy Court for the District of Rhode Island in Providence, said the plan, if confirmed, will restructure the city’s debt and steer the 18,000-population, one-square-mile city toward fiscal stability.
Flanders said the intent of the debt adjustment plan is to “avoid financial purgatory for the city of Central Falls, and all Rhode Island municipalities, by taking all steps necessary to protect access for the city and all Rhode Island cities and towns to the municipal capital markets.”
The plan, if adopted, would provide for a balanced budget in Central Falls for every fiscal year, beginning in 2013. “[It] is a working document with a certain degree of flexibility,” said a statement from Gov. Lincoln Chafee’s office late Thursday afternoon.
Central Falls, which filed for Chapter 9 protection on Aug. 1, projects about a $5 million operating deficit for each of the next five years — about one-third of its non-earmarked revenues. It also faces an $80 million unfunded pension gap.
Flanders is still negotiating with unions and police and fire retirees over pay and pension benefit cuts. He also advocates consolidating the police and fire departments into a single department of public safety, and has proposed cuts of up to 55%, while union and retiree attorneys have promised a legal fight.
In addition, he seeks a property tax increase.
Flanders’ report said the reductions represented “an affordable less generous plan” for current and future retirees, “to avoid a situation like that in Prichard, Ala., where pensioners were deemed the lowest priority and therefore received no pension at all.”
Thursday’s filing designated classes of claims. According to court documents, Class 1 consists of holders of $12 million of Central Falls general obligation school bonds, dated July 15, 1999, about $6.7 million of which was outstanding as of Aug. 1. Class 2 claims are for holders of $8.7 million of GO municipal facility bonds dated Oct. 1, 2007, of which $7.7 million was outstanding. Class 3 consists of $1.4 million of GO school bonds, dated Aug. 15, 2007, of which $1.2 million was outstanding.
Claims of lost benefits for police, fire, and municipal employees as a result of the restructuring are further down the list. Under the proposal, police and fire retirees could pay up to 20% of their premiums.
Flanders’ announcement came one day after the state’s acting auditor-general issued a report that painted a messy picture of pension funding in Rhode Island.
Dennis Hoyle said the collective unfunded liability for 36 locally run pension plans has increased to $2.1 billion from the $1.9 billion it reported in March 2010, with 24, or two-thirds, of the pension plans considered “at risk.” Providence, Cranston, and Warwick alone are responsible for 61% of the shortfall, Hoyle said.
“Generally, there is a disconnect between the retiree health benefits typically negotiated through collective bargaining agreements and the associated long-term costs. For example, it is not uncommon for local public safety retirees to receive family health coverage for life — a period that could span more than 40 years,” Hoyle wrote.
On Wednesday, Moody’s Investors Service downgraded Coventry, R.I.’s GO rating to A1 from Aa3, affecting $25.5 million of outstanding parity debt. The outlook remains negative. Moody’s also assigned an A1 rating with a negative outlook to $12.6 million of refunding bonds.
Moody’s cited the “continued insufficient funding” of funding levels of the town and police pension plans — 28% and 16%, respectively, as of July 1. The rating agency cited challenges that included the use of underfunded annual pension payments as budgetary relief, continued revenue weakness, ongoing expenditure demands, and declining taxable values.
Hoyle’s report warned about the correlation between unfunded pension liabilities and recent Rhode Island municipality downgrades by major rating agencies. Pension problems were cited in the Central Falls, Coventry, East Providence, Providence, and West Warwick downgrades.
Conduit issuers Rhode Island Economic Development Corp. and Rhode Island Health and Educational Building Corp. also received downgrades after Central Falls filed for bankruptcy.
On Friday, Moody's took another ratings action in Rhode Island, though not pension-related. It warned that a multinotch rating downgrade of St. Joseph Health Services of Rhode Island is possible, while placing its B2 rating on its watch list. This affects $18.2 million of outstanding debt.
Moody's cited "a sharp decline in unrestricted cash and investments and continued financial difficulties," based on St. Joseph's unaudited 10 months of fiscal 2011 statements ended July 31.
