The Tip of a Very Big Iceberg
Congress must ban a Fed bailout of this and other cities like it:
The major problem is the city, with an annual operating budget of about $16 million, is facing about $32 million in promised after-retirement health-insurance costs in addition to the $48 million in pension obligations.
“That’s $80 million for a city that has 19,000 citizens, approximately,” he said. “That’s a huge problem.”
Pfeiffer raised the specter of a municipal bankruptcy filing as a last resort. He suggested the General Assembly enact legislation that would specifically exempt a city’s municipal-bond obligations from being changed by a bankruptcy court. Contracts with unions and their pension plans, as well as vendor contracts, could still be modified, however.
That kind of protection for the city’s creditors was essential because all municipalities need to be able to borrow money to operate, he said, and without that protection, it would be impossible for Central Falls to sell bonds. It could cost other Rhode Island municipalities as well, Pfeiffer said, in lower bond ratings because of investor fears they too might file bankruptcy.
The crisis in Central Falls has been growing for more than a decade, Pfeiffer said. City administrations approved municipal employee contracts Central Falls could not afford and kept giving out pension and retirement benefits without figuring how to pay for them, and now the funds are running out of money. That situation was exacerbated over the years by municipal officials who ignored it when it was manageable and only reacted when it was too late.