Thread: Contracts w/Municipal Workers / Retirees / Police Voided

Central Falls Bankruptcy Update "All Contracts with Municipal Workers and Retirees Including Police and Fire Workers Immediately Voided"

Monday, August 01, 2011 10:05 PM

In an update to my post earlier today and as expected, but sooner than expected (less than a day) Central Falls Collective Bargaining Contracts Voided In Bankruptcy. http://newsblog.projo.com/2011/08/recei ... falls.html

The state-appointed receiver overseeing cash-strapped Central Falls filed for bankruptcy Monday morning on the city's behalf in an effort to help it get back on its financial feet.

Receiver Robert G. Flanders announced the step at City Hall Monday. He was joined by Governor Chafee, who says the move is needed to address Central Fall's finances.

All contracts with municipal workers and retirees, including the fire and police departments, are immediately voided.

Retirees must begin to pay 20 percent of their medical coverage effective immediately, as Flanders proposed when he met with the city's retirees July 19.

"Everything was done to avoid this day," Flanders said.

"Services have been cut to the bone. Taxes have been raised to the maximum level allowable.

"We negotiated with Council 94 and the police and fire unions, without success, attempting to reach voluntary concessions, and we tried in vain to persuade our retirees to accept voluntary reductions in their benefits."

In papers filed with the bankruptcy court, Flanders said, "the city's to the point where it is insolvent. The overwhelming pension obligations and the slowing economy, among other factors, have significantly decreased revenues while the city's operational costs have increased."

Deficits are expected to grow in each of the coming years, he said.

"On or before August 21, 2011, the city will lack sufficient revenues or cash flow to pay its bills as they become due, and then will not be able to pay its debts as they become due in every succeeding month for the remainder of the fiscal year (which ends on June 30, 2012) except for the month of October 2011... In addition, the city is no longer able to access capital markets."

Flanders says that through the Chapter 9 proceeding, "the city seeks to develop and implement a plan of debt adjustment that will return the city to solvency and viability. To do so, the city must modify its debts and obligations so that they do not exceed the city's projected revenues.

"The motion to void the city's three collective bargaining agreements," Flanders states, "is a critical step toward achieving that objective.

"Simply stated, the city cannot restore balance to its budget unless it restructures its labor costs as a critical element of any plan to debt adjustment. In FY 2012, the largest city expenditure is the cost of labor, and the largest portion of the city's labor costs is paid to union employees."

"Given today's action," General Treasurer Gina M. Raimondo said in a news release, "the governor and I are even more resolved to pursue comprehensive pension reform this fall to protect other state and municipal retirees and employees as well as taxpayers from the heartache of the drastic measures being taken in Central Falls. None of these groups did anything wrong and allowing this to happen again is unacceptable."

The above is an update to my post earlier today Central Falls Rhode Island Files Chapter 9 Bankruptcy; Court Asked to Negate Collective bargaining Agreements; Vallejo Precedent http://globaleconomicanalysis.blogspot. ... files.html

Central Falls was bankrupt years ago and I said so repeatedly. The costs on taxpayers to delay this bankruptcy have been severe.

Once states realize that bankruptcy is not tantamount to statewide Armageddon, there will be a flood of city bankruptcies.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

http://globaleconomicanalysis.blogspot. ... e-all.html

Central Falls Rhode Island Files Chapter 9 Bankruptcy; Court Asked to Negate Collective bargaining Agreements; Vallejo Precedent

Monday, August 01, 2011 12:52 PM

At long last ‘Dire’ Situation Forces Rhode Island City of Central Falls Into Bankruptcy http://www.bloomberg.com/news/2011-08-0 ... uptcy.html

Central Falls, Rhode Island’s poorest city, filed for Chapter 9 bankruptcy protection as it struggles to meet its pension obligations.

The petition was filed today after state officials failed to persuade unionized police, firefighter and municipal retirees to accept voluntary benefit concessions, according to a statement from Robert Flanders, a judge appointed to oversee the city’s finances. Flanders said he asked the court to reject existing collective-bargaining agreements with the unions.

Central Falls, a city of about 18,000 located about 6 miles (9.7 kilometers) north of Providence, is the fifth municipal entity to file for bankruptcy this year, compared with six in all of 2010, according to data compiled by Bloomberg. The filing followed last week’s move by lawmakers in Jefferson County, Alabama, to postpone a vote on proceeding with what would be the biggest U.S. municipal bankruptcy.

The Central Falls pension plan was expected to run out of assets by October without additional funding or significant concessions from both current employees and retirees, according to a June 17 report from Moody’s Investors Service.

Frank Bailey, a U.S. bankruptcy judge in Massachusetts, will oversee the bankruptcy for the city, according to a court filing.

Police and Firefighters Asked to Accept 50% Pension Haircuts

On July 23, 2011 I reported Central Falls Gives Ballots to Police and Firefighters Asking for 50% Pension Reductions or Risk Losing Everything in Bankruptcy Court http://globaleconomicanalysis.blogspot. ... olice.html

In a scene that is going to play out in scores of cities across the nation, unions are going to come to grips with the fact that pensions are not sacrosanct. Please consider Rhode Island city asks retirees to cut their pensions http://articles.cnn.com/2011-07-21/us/r ... s?_s=PM:US

Simple Rule

What cannot be paid won't. Taxpayers have had enough. Central Falls is a small and troubled city, but this same scene is going to eventually hit Pittsburgh, Oakland, Houston, Detroit, San Francisco, Los Angeles, Chicago, and most likely every major city in the country.

Benefits are untenable. The sooner something is done, the better off everyone will be.

Things That Must Change

1. Defined benefit pension plans for government workers must end
2. Davis-Bacon and prevailing wage laws that drive up costs of Federal projects and clobber city and municipal governments must come to an end
3. National right-to-work laws must be enacted
4. Collective bargaining of public unions must end
5. Existing pension benefits must be renegotiated

Unions will not like any of those but they are all going to happen.

I am disappointed that Rand Paul and others in the Senate did not take up points 2 through 4 in the budget negotiations. Small tax hikes in return for those items would have been well worth it.

Vallejo Precedent: Union Contracts Can Be Voided

Central Falls retirees said no, and now it is up to the courts. Please recall there is already precedent in Vallejo, California for union agreements to be tossed out in bankruptcy.

Flashback March 17, 2009: Judge Rules Vallejo Can Void Union Contracts http://globaleconomicanalysis.blogspot. ... union.html

In a groundbreaking ruling as well as a rare victory for common sense and the overall good of taxpayers, Bankruptcy Judge Rules Calif. City Can Void Union Contracts.

The Central Falls' police and fire fighters are taking a big chance. There is no realistic alternative to massive cutbacks in those pension agreements. Raising taxes would drive out homeowners and businesses and that is the last thing Central Falls needs.

Expect this type of action to hit major cities within the next few years. The sooner the better because public union pension contracts are untenable.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

http://globaleconomicanalysis.blogspot. ... files.html