chapter 9

Do Michigan’s struggles vindicate RI’s bondholders-first law?

August 13th, 2013 at 1:12 pm by under Nesi's Notes, On the Main Site

After Central Falls collapsed into insolvency in 2010, state leaders scrambled to contain the fallout and ensure the tiny city’s struggles didn’t cause a domino effect that would raise borrowing costs for other cities. House Democratic leaders quickly pushed through a new law giving bondholders first dibs for repayment if a city or town files for bankruptcy – which is what happened in Central Falls’ Chapter 9 case.

The law has won praise from big investors, but has been somewhat controversial locally: Governor Chafee rejected a call for its repeal by the AFL-CIO. One of the big unanswered questions, though, has been whether there was really a risk of contagion in the bond market – or if Central Falls wouldn’t impact other cities.

Stephen Eide, a senior fellow at the Manhattan Institute’s Center for State and Local Leadership, thinks the situation in Michigan since Detroit filed for bankruptcy may be vindicating Rhode Island leaders’ concerns. In a new post for Public Sector Inc, Eide writes:

[Rhode Island's] law was way more Wall Street-friendly than paying back the 38 Studios debt and incomparably harsher towards retirees, who took brunt of the bankruptcy cuts, than Gina Raimondo’s pension reform.

From a policy perspective, the deepest problem with the great Rhode Island bondholder bailout of 2011 is that many hold out hope that, someday, bondholders might play a more constructive role in holding state and local governments accountable for their fiscal misdeeds. But there’s little chance a bondholder will become a bond vigilante if he can be confident that, no matter how bad things get, his interests will never be harmed.

Anyway, the point is that events in Michigan have provided defenders of Rhode Island’s actions during the Central Falls meltdown (and also, for that matter, the 38 Studios affair) with strong evidence for their view that it’s never in the interest of a state government – who has a responsibility to all its governments and taxpayers – to let a locality jilt Wall Street. …

Whether one prefers Michigan’s approach or Rhode Island’s, fiscal distress is a state issue, and there are difficult choices to be made which must take into consideration the interests of all state taxpayers and local governments.

• Related: Q&A: Penn Law’s Skeel on RI pensions, bankruptcy and bonds (March 2, 2012)


Watch Newsmakers: Woonsocket’s Fontaine, Rep. Shekarchi

June 30th, 2013 at 5:00 am by under Nesi's Notes, On the Main Site


Woonsocket pension fund set to run out of money in 10 years

February 25th, 2013 at 6:09 pm by under Nesi's Notes, On the Main Site

​By Ted Nesi

WOONSOCKET, R.I. (WPRI) – Officials in Woonsocket on Monday asked the cash-strapped city’s retirees to agree to give up annual increases in their city-managed pensions and move to Medicare or else risk pushing the city into bankruptcy.

Read the rest of this story »

• Related: Woonsocket’s problems include debt, botched 2002 pension fix​ (June 14)


Raimondo to headline Bond Buyer municipal conference in RI

January 23rd, 2013 at 10:33 am by under Nesi's Notes, On the Main Site

Raimondo speaks at a Bond Buyer dinner

Here’s a rare silver lining to Rhode Island municipalities’ financial troubles: it’s made so much news that a two-day conference on distressed communities is coming to the capital city.

The financial newspaper The Bond Buyer will hold its 2nd Annual Distressed Municipalities Conference on March 18 and 19 at the Omni Providence Hotel (formerly the Westin). Treasurer Gina Raimondo, who received an award at a Bond Buyer dinner in December, is one of the headliners.

Bond Buyer publisher Michael Stanton told WPRI.com its major events are usually held within the Northeast Corridor, where institutional investors are concentrated, and in places that are geographically accessible to government leaders.

(more…)


Chart: How Taveras closed most of Providence’s $110M deficit

January 10th, 2013 at 5:00 am by under Nesi's Notes, On the Main Site

Well, in the end Providence didn’t file for bankruptcy – an outcome that loomed as a very real possibility last winter when the city’s cash flow crisis was most acute (and a confused Judge Taft-Carter made things worse). The final audit shows Providence finished fiscal 2011-12 with an $11.4 million deficit.

The Taveras administration acknowledges the city budget still has a built-in $4 million structural deficit, though that’s way down from the $110 million shortfall his fiscal review panel originally found. So how did the mayor eliminate 96% of the structural deficit? Here’s a chart from the city with their breakdown:

(“Revenue enhancements” has to be one of my least favorite bits of political spin. I don’t expect press shops to switch to “Job-killing tax hikes,” but what about plain old “Revenue increases”?)


Bloomberg says RI is ‘Setting Standard For Bondholders’ Love’

August 30th, 2012 at 9:33 am by under Nesi's Notes, On the Main Site

First it was Bond Buyer, and now Bloomberg News is using Central Falls’ expected exit from bankruptcy next week to take stock of Rhode Island’s solicitous attitude toward Wall Street and its bondholders. Michael McDonald and Steven Church report for Bloomberg:

Central Falls, the first city in Rhode Island’s 222-year history to go bankrupt, is preparing to exit court protection after 13 months by keeping bondholders whole while raising taxes and cutting workers and pensions.

The financial and political support Central Falls got from state officials makes the case unique among municipal bankruptcies in the past year from Alabama to California. …

The Central Falls approach “is a good sign for bondholders of Rhode Island bonds compared to, say, California,” said Alan Schankel, head of fixed-income research at Janney Montgomery Scott LLC, an investment bank in Philadelphia. …

“You take the bonds being held hostage out of the equation,” said James Spiotto, a bankruptcy lawyer in Chicago with Chapman & Cutler LLP.

To understand why Central Falls’ bankruptcy will likely go down as one of the major policy achievements of the Chafee administration, it’s instructive to read this May 2011 post explaining just how difficult the process was expected to be. For better or worse, depending on your perspective, Central Falls will now be held up as evidence that municipalities can use Chapter 9 effectively to get out from under their financial burdens.

Rhode Island’s high unemployment rate and long list of financial problems make it easy to miss the fact that significant progress has been made by the class of officials elected in 2010 – Chafee (and Rosemary Booth Gallogly) in Central Falls and other municipalities, Raimondo and Chafee with the state pension system, Taveras with the mess in Providence. The most important and toughest task remains, though – fixing the state’s economy.

• Related: Could RI’s pay-bondholders-first law be unconstitutional? (Aug. 12)

(photo: Ted Nesi/WPRI)


Chart: High-tax Woonsocket faces higher taxes if it follows CF

June 19th, 2012 at 5:00 am by under Nesi's Notes, On the Main Site

Woonsocket’s financial turmoil has led to much discussion about the example of Central Falls, which first entered receivership in May 2010 and filed for bankruptcy in August 2011. One lesson from the tiny city – there’s probably no way Woonsocket residents avoid a big increase in their tax bills over the coming years.

This chart shows total property taxes levied in Central Falls from 2008-09 through 2015-16, the last year projected in its court-ordered restructuring plan. Taxes will jump nearly 35% citywide before inflation:

Taxes are already high in Woonsocket when compared with other cities, though.

Another chart included in Central Falls’ bankruptcy filing shows effective tax rates for six distressed communities in 2010-11, adjusted for income; Woonsocket is the most-taxed by that measurement:


Is W. Warwick the next Central Falls? No pension fund by 2017

May 9th, 2012 at 5:00 am by under Nesi's Notes

By Ted Nesi

WEST WARWICK, R.I. (WPRI) – The bankruptcy on the Blackstone River hung over West Warwick High School’s auditorium Tuesday as town leaders got a dire warning from state officials: their pension fund for 654 active and retired police officers, firefighters and town workers is on track to run out of cash within five years.

Read the rest of this story »


Moody’s praises Providence for paring back pension benefits

May 8th, 2012 at 2:54 pm by under General Talk, Nesi's Notes, On the Main Site

The Providence City Council may be uncertain about the pension changes it just passed, but Moody’s isn’t.

“The ordinance is a credit positive because it provides current and future year budgetary relief to the financially strained city, although labor unions are likely to challenge the new law since it conflicts with existing collective bargaining agreements,” Moody’s analysts Susan Kendall and Geordie Thompson wrote Tuesday in a note to investors obtained by WPRI.com.

The pair described the pension overhaul as another sign that Mayor Angel Taveras and the City Council are taking difficult steps to avoid bankruptcy, saying it “demonstrates city management’s strong willingness to cut its long-term obligations despite resistance from employee groups and the threat of litigation.”

They also noted that last week Taveras reached deals with tax-exempts Brown University and Lifespan for an additional $33.9 million worth of payments over the coming years, which the administration “projects … will bring its 2012 and 2013 budgets into balance, although its reserve position and liquidity will remain weak.”

(more…)


Police union blasts ‘underhanded, despicable’ Taveras, Council

May 7th, 2012 at 5:00 am by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The Providence police union is threatening all-out war on Mayor Angel Taveras and the City Council for freezing retired officers’ pensions, labeling the elected officials “underhanded, despicable and heartless” for holding a crucial vote the night of a fallen officer’s wake.

“Their actions that night and the following Monday showed what we mean to them …………ABSOLUTELY NOTHING, JUST A NUMBER!!!!” the executive board of Fraternal Order of Police Lodge #3 wrote members last week in an email obtained by WPRI.com. “The old saying ‘action speaks louder than words’ is so true, and their actions came through loud and clear and it sounded a lot like SCREW YOU!!!”

The City Council voted unanimously to approve the sweeping pension overhaul on April 26, the night before Sgt. Maxwell Dorley’s funeral. ”The audacity of the Mayor and City Council to do such a thing on the night that we waked one of our own, who died in the line of duty for this City is underhanded, despicable and heartless, and a slap in the face to all of us,” the police email said.

In a statement on Friday, Taveras told WPRI.com it had been “a very significant and emotional week for all who work in the city of Providence. Those who serve our city know better than most the history that led Providence into this crisis.” (more…)


The Economist magazine on ‘desperate times’ in Rhode Island

May 3rd, 2012 at 12:46 pm by under Nesi's Notes, On the Main Site

The last time the tart-tongued British weekly The Economist wrote a major story about Rhode Island, in 2009, the headline was “Little Rhody in the red” and the focus was on the state’s “mammoth economic problems.”

Well, The Economist is back – and this time the focus is on the public-sector finance crisis roiling cities and towns across the state. “Improvident,” the headline declares. “Desperate measures for desperate times.”

Here’s an excerpt from the article (no byline, natch):

IT WOULD be something of an overstatement, explains Angel Taveras, the mayor of Providence, Rhode Island’s capital, to call the measures he signed this week a “strategy” for dealing with the city’s financial troubles. He and the city council are simply facing reality, he says. The city was projected to run a deficit of $110m this year. Despite shedding jobs, cutting pay, trimming benefits, curbing services and expanding the tax base (on top of an 11% tax rise last year), Providence still faced a shortfall of $21m or so. There was no way to set its finances to rights without tackling the city’s huge pension costs.

Political observers will undoubtedly also note this is the first national or international article about the state’s finances in quite a while that makes no mention of Treasurer Gina Raimondo. Also, hard as it may be to believe, The Economist actually overstates the health of Providence’s pension system; it’s only 32% funded.


Iannazzi criticizes intransigent Providence police, fire retirees

May 2nd, 2012 at 5:52 pm by under Nesi's Notes, On the Main Site

Iannazzi, right, with Taveras

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The leader of Providence’s largest union leveled his toughest criticism yet at the city’s police and fire retirees this week, saying their alleged intransigence killed a potential deal with Mayor Angel Taveras to stabilize the troubled pension system and suggesting they do not understand the gravity of the situation.

“Some individuals, acting in a manner that I characterize as irresponsible, have suggested that no changes to the retirement system can occur and that we stand back and let the inevitable (city insolvency) occur,” Donald Iannazzi, Local 1033′s business manager, wrote Tuesday in a letter to his members. “Local 1033 has never acted irresponsibly and will not start today.”

Iannazzi confirmed the letter’s authenticity after WPRI.com obtained a copy. It says Local 1033′s negotiating team “agreed in principal to a tentative agreement” that would have suspended cost-of-living adjustments (COLAs) for retirees receiving less than $40,000 in exchange for no changes to medical benefits. The union’s agreement was contingent on police and fire retirees signing on, he said.

“Response from too many retirees receiving 5% and 6% compounded COLAs was that they would rather fight to the end, even if the end caused a failure in the retirement system and in the city,” Iannazzi said.

Joseph Penza Jr., the attorney representing the Providence Retired Police and Firefighters Association in negotiations with the city, disputed Iannazzi. “I have no idea where he got that information from, absolutely none,” Penza told WPRI.com. “I don’t know who he’s quoting. We’ve been negotiating with the city. … That mantra, if you will, does not come from us.”

(more…)


Central Falls bankruptcy may end by July, but retirees struggle

April 27th, 2012 at 3:23 pm by under Nesi's Notes

city retirees hear about the pension cuts last year

By Ted Nesi

CENTRAL FALLS, R.I. (WPRI) – Central Falls is being carefully and painfully nursed back to health.

The city could be out of bankruptcy within three months, but the situation is bittersweet because of the people who have been impacted, according to Rosemary Booth Gallogly, the Chafee administration’s director of revenue.

Those people include Paul Gagnon, a retired Central Falls firefighter who’s battling stage four prostate cancer. Gagnon, whose story will be told Monday night on Eyewitness News at 11 on WPRI 12, saw his accidental disability pension cut by almost a third after the city filed for bankruptcy.

Read the rest of this story »

(photo: Ted Nesi/WPRI)


Providence put among ‘cities set to enter default danger zone’

April 19th, 2012 at 12:43 pm by under Nesi's Notes, On the Main Site

Rhode Island got more of the sort of national publicity it doesn’t need this week, with Providence again characterized as another Detroit – a city that is now perilously close to bankruptcy.

Here’s Michael Connor, reporting for Reuters on Tuesday:

[T]he next series of major cities and counties in danger of defaulting on their debt can hardly point to one single decision for their malaise. Whether it be Detroit, Miami or Providence, Rhode Island, their problems have a lot more to do with financial policies that put them on course to live well beyond their means. …

“This is a lagging process,” said Richard Ciccarone, managing director at McDonnell Investment Management. “Capitulation may not come for years. In the crash of 1929, the defaults did not come until 1934 or 1935. The marginals hang on as they can.” …

“Over the next year or two, there is a big risk of more Chapter 9 filings in certain parts of the country: California, Rhode Island and the Midwest,” said municipal bankruptcy lawyer David Dubrow of Arent Fox. …

In Rhode Island, where the governor backs legislation to reduce operating costs for distressed local governments, cities such as Providence and Pawtucket are seen as possible candidates for bankruptcy. Afflicted by underfunded pensions, the state’s Central Falls is bankrupt.

In Providence, Mayor Taveras used the word “bankruptcy” for the first time in a Feb. 2 news conference, but since then he’s stressed his optimism that it won’t come to that. The city wants retirees to agree to pension concessions by May 1 – less than two weeks from now – and still hasn’t announced a deal with six of its seven biggest nonprofits. Taveras will unveil his proposed 2012-13 budget on Monday night.

At the General Assembly, meanwhile, the House Finance Committee will hold a hearing to consider Governor Chafee’s municipal relief legislation next Thursday at 1 p.m. Senate Finance held its own hearing on April 12, but the panel took no action that day and has yet to schedule a vote on any of the bills.

• Related: WSJ editorial lumps Providence financial crisis in with Detroit’s (March 15)


About two dozen of city’s 4,300 retirees will suspend COLAs

April 13th, 2012 at 10:36 am by under Nesi's Notes, On the Main Site

Providence Mayor Angel Taveras sent a letter March 28 asking the city’s retirees to voluntarily suspend their cost-of-living adjustments, and about two dozen have agreed so far. (Alisha Pina has more details.) The missive went out as the city continues negotiations with Local 1033, police and fire retirees.

If you want to read the documents Taveras sent, you can download them as PDFs from WPRI.com: the three-page letter, the legal release form, and the frequently asked questions. In the letter, Taveras says the city “runs the risk of running out of cash by the end of June and faces a $50 million shortfall in July.”

Another section of Taveras’s letter might be interesting to taxpayers as well as retirees:

We have a $613 million annual budget. Of that, $308.6 million is allocated to our public schools and by state law we are prohibited from cutting education funding. That leaves $305 million. We also need to make $69 million in debt payments. That leaves $235 million. Our annual required payment (ARC) to the pension system is $58.9 million. That leaves $176.6 million. Retiree medical costs amount to $38 million.

In all, we have $138.6 million to run the city. That includes payroll, public safety, road repairs, parks and recreation, contributions and support for our community centers and libraries and trash pickup, among other things. To date, we have spent approximately $92.4 million, leaving us with $46.2 million in the bank to get us to the next fiscal year. Our budget deficit is 48 percent of our remaining cash. We cannot rely solely on cutting spending to balance our budget. …

To use the language of the federal budget, only $138.6 million of the city’s $613 million budget is discretionary spending; the rest – 77% of the budget – is mandatory spending. The city will actually spend more this year on debt and retirees ($165.9 million) than it will on all non-school city services ($138.6 million).

Politically, Taveras’s challenge is made even greater because the discretionary spending category includes most of the services residents actually notice (police, parks, libraries, potholes, snow plowing). So the spending he has direct control over is also the spending people are most likely to complain about seeing cut.


Raimondo hears investors’ concerns about crisis in Providence

April 10th, 2012 at 1:34 pm by under Nesi's Notes

By Ted Nesi

WARWICK, R.I. (WPRI) – Rhode Island’s bondholders are nervous about Providence’s shaky finances and the wider municipal financial crisis roiling the state, Treasurer Gina Raimondo said Tuesday.

“They all ask about the capital city,” Raimondo told WPRI.com. “There’s concern of course. … I don’t sugarcoat it. There are a lot of municipal problems. So I say, you’re right, we have them, but I believe we’re going to make them better.”

Raimondo’s comments came as she left a meeting at CCRI’s Warwick campus where Treasury staffers offered guidance to leaders from the municipalities that operate the state’s 36 locally run pension plans.

Read the rest of this story »


RIPEC: Bankruptcy perilous for cities; pass Chafee’s bills first

April 2nd, 2012 at 6:00 am by under Nesi's Notes, On the Main Site

The General Assembly should give Rhode Island’s cities and towns as much flexibility as possible to fix their finances without declaring bankruptcy in order to help Providence and Woonsocket avoid following Central Falls into Chapter 9, according to a new study out Monday.

“Bankruptcy protection may aid municipalities who are having difficulties meeting their financial obligations by allowing greater flexibility with regard to contractual requirements and payments,” says the study by the Rhode Island Public Expenditure Council [pdf], the business-backed think tank.

“However, it often also results in greater borrowing costs for the municipality, and potentially for the state,” RIPEC says. “Furthermore, the community may become less attractive to current and potential businesses and residents … further straining the community’s fiscal capacity.”

The new study from RIPEC comes amid a growing debate over whether bankruptcy could be an unavoidable and perhaps beneficial step for some of the nation’s most fiscally distressed cities and towns. Robert Flanders, the receiver in Central Falls, has become a leading proponent of that view since putting that city into Chapter 9 last year.

(more…)


Flanders emerging as leading national proponent of Chapter 9

March 30th, 2012 at 8:59 am by under Nesi's Notes, On the Main Site

Central Falls receiver Robert Flanders is making waves in Rhode Island, all the way from Philadelphia.

Flanders flatly told a Bloomberg reporter there this week he sees no way Providence can avoid bankruptcy, a comment that appeared to leave Mayor Angel Taveras aghast – even though Flanders is advising him.

“I was surprised and I disagree,” Taveras told WPRI.com on Thursday when asked about Flanders’ remarks. “Providence is not Central Falls. I will do everything in my power to avoid that.”

“Providence,” the mayor repeated, “is not Central Falls.”

Maybe not, but Flanders is now a true believer in the power of letting cash-strapped municipalities file for bankruptcy under Chapter 9 of the federal code. The Huffington Post’s Matt Sledge reports on what Flanders told attendees at a Bond Buyer conference in Pennsylvania’s capital:

From the comments of Flanders and others at the municipal bonds conference, it seems like the industry is in agreement about one thing going forward: someone is going to have to suffer, and it shouldn’t be bondholders. And the draconian measures needed to stave off financial disaster will often require an unelected official – be it a receiver in Rhode Island or an emergency manager in Michigan – to assume near-dictatorial powers.

Bankruptcy, Flanders said, should no longer be a dirty word. Sometimes it’s the only way to extract concessions from public employees unions and retirees, who he said weren’t very happy when he first proposed slashing pensions by 50 percent. …

It was only bankruptcy’s provisions that let Flanders, as city receiver, actually go through with those cuts, he noted. “We could blow up any contract we liked.”

Public employees’ concerns should be balanced, he argued, against the investors whose money allows cities to operate.

Read the rest here. All this comes as Taveras continues to struggle in Providence, Woonsocket prepares to slap a 13% midyear tax hike on its residents, and Governor Chafee is beating the drum for his far-reaching package of municipal-relief legislation. Chafee will discuss his proposal on “Newsmakers” this weekend.

HuffPo isn’t the only left-leaning publication covering Providence’s financial troubles, either. The Nation’s Erin Schikowski, who attended Taveras’s retiree town hall earlier this month, filed a story giving an overview of the situation on TheNation.com this week, too.

(photo: AP)


Fitch slashes Providence’s bond rating three steps to near junk

March 14th, 2012 at 3:49 pm by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Fitch Ratings slashed Providence’s bond rating three steps on Wednesday afternoon, just weeks after the mayor warned the capital is on “the brink of bankruptcy.”

Fitch dropped Providence’s rating from A to BBB, two notches above “junk,” and kept a negative outlook on its finances. The decision follows a Feb. 14 conference call about the capital’s financial crisis during which Fitch analysts in New York spoke with Mayor Angel Taveras, Gov. Lincoln Chafee and other city and state officials.

Chafee is poised on Thursday to unveil legislation that he says would help relieve pressure on local budgets if passed by the General Assembly, which is expected to give cities and towns authorization to suspend cost-of-living increases to their pensioners.

Others reacted grimly to the latest financial setback for Rhode Island. “The light at [the] end of [the] tunnel is a train speeding toward us,” former Treasurer Frank Caprio wrote on Twitter.

Read the rest of this story »

(photo: Ted Nesi/WPRI)


Local 1033 wants out of city pension system; Taveras opposed

March 13th, 2012 at 6:00 am by under Nesi's Notes, On the Main Site

Taveras and Iannazzi

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The biggest municipal union in Providence wants out of the city pension system.

Donald Iannazzi, business manager for Local 1033 of the Laborers’ International Union, is pushing Mayor Angel Taveras to let his members out of the city’s severely underfunded pension system, saying they shouldn’t get the same treatment as police and fire retirees in light of sacrifices they’ve made already.

In a Feb. 29 letter to Local 1033′s retirees, Iannazzi suggested “separating the [Providence] Retirement System so that the money, invested by our members and the city for our members, can only be used to pay benefits for our members.” The city’s pension system currently pays benefits for all City Hall, police and fire retirees out of one commingled pool of funds.

Iannazzi confirmed the letter’s authenticity on Monday. ”Providence is incapable of managing its own pension system,” he told WPRI.com. “I think that has been proven over time.”

(more…)


Taveras asks city retirees to freeze COLAs, cut health benefits

March 3rd, 2012 at 10:38 am by under Nesi's Notes

By Ted Nesi

CRANSTON, R.I. (WPRI) – Providence Mayor Angel Taveras on Saturday made a direct pitch to more than 800 city retirees to accept reduced pensions and less generous health care coverage to help the city avoid a bankruptcy filing.

During a sometimes tense meeting at Rhodes on the Pawtuxet in Cranston, the mayor asked Providence’s 4,300 retirees to accept three changes: the suspension of future pension cost-of-living adjustments (COLAs) until the system gets from its 32% funded level to 70%; a 20% health insurance co-share for retirees under the age of 65; and a transition to Medicare with a supplemental plan for those 65 and older.

“I want to make sure that we save your pensions,” Taveras told roughly 475 retirees gathered in the room and nearly 400 more watching online. The three changes would save nearly $29 million a year, the city said. He estimated the COLA freeze would last roughly 20 years.

Retirees pushed back hard during the question-and-answer session, raising a host of issues from why Providence educates the children of illegal immigrants and doesn’t levy an income tax on everyone who works there to whether it should sell the water system. At times, Taveras matched the combative tone taken by some of the former workers.

“Keep it factual – that would be helpful,” he said at one point.

Read the rest of this story »

(photo: Ted Nesi/WPRI)


Q&A: Penn Law’s Skeel on RI pensions, bankruptcy and bonds

March 2nd, 2012 at 6:00 am by under Nesi's Notes, On the Main Site

On Saturday morning, Providence Mayor Angel Taveras will convene a meeting of the city’s retirees to ask them to accept reductions in their pension benefits to help the capital avoid filing for bankruptcy, as nearby Central Falls did last August. What happens if they don’t come to an agreement?

David Skeel is a professor at the University of Pennsylvania Law School in Philadelphia and a nationally known expert on bankruptcy and Chapter 9. We spoke on Thursday about what bankruptcy would mean for Providence’s pension system, how Central Falls has changed the legal landscape, and why he doesn’t buy the case for Rhode Island’s bondholders-first law. The transcript has been lightly edited for length and clarity.

I was fascinated by the argument in your working paper that government employees’ and retirees’ property rights cover the pension fund but not the pension promises. Could you explain that?

The question is if a city or a state makes a pension promise, but does not fund the promises – which has been true in many states in recent years – what exactly is protected in the event of a default or of bankruptcy? A lot of people assume that what’s protected is the full promise, even if there’s no funding behind it.

Although this is certainly not free from doubt – this is unchartered territory in many respects – my view is that there’s a good argument that what’s protected is the amount of money that’s been set aside. Pension obligations are a form of what we refer to in the law as a property right, and other kinds of property rights are protected up to the value of the property that’s set aside for them. So if somebody has collateral for a transaction, we treat that promise as sacrosanct up to the value of the collateral.

(more…)


WPRI Poll: State should keep Providence out of bankruptcy

February 28th, 2012 at 5:45 pm by under Nesi's Notes, On the Main Site

By Tim White and Ted Nesi

PROVIDENCE, R.I. (WPRI) – More than two-thirds of Rhode Islanders want the state to help Providence avoid going bankrupt, according to an exclusive WPRI 12 poll released Tuesday evening.

The new survey of 511 registered voters finds 71% think the state should do what’s necessary to prevent the capital city from filing for bankruptcy, while 19% think the capital should be allowed to reduce its debts by filing as Central Falls has, with 10% unsure.

“I was kind of surprised 71% said ‘save the city’ – that’s overwhelming,” WPRI 12 political analyst Joe Fleming said. “Obviously, the residents of Rhode Island want to avoid the capital city going into bankruptcy. That would really put a black eye on Rhode Island.”

Read the rest of this story »


Mayor cites ‘progress’ before third meeting with Brown U. prez

February 28th, 2012 at 10:32 am by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Providence Mayor Angel Taveras says he’s “making good progress” in negotiations with Brown University over how much the Ivy League school should increase its contribution to the city budget.

Taveras and Brown President Ruth Simmons have met face-to-face twice in the last two weeks and spoke by telephone on Monday, the mayor told WPRI.com. “We’re planning to meet again soon,” he said. “She’s personally involved.”

Taveras met earlier this month with the CEOs of Providence’s large hospitals to plead the city’s case with them. “We’re pursuing that, as well,” he said. “Those conversations are ongoing.”

The mayor has asked Providence’s largest tax-exempt schools and hospitals to contribute an additional $7.1 million to the city budget as he tries to keep the state capital out of bankruptcy. An exclusive new WPRI 12 poll set for release Tuesday at 6 p.m. will show whether Rhode Islanders think the state should keep the city out of Chapter 9.

Taveras will meet Saturday morning with city retirees to ask them to accept voluntary reductions in their pension benefits. “You have to have structural change,” the mayor said Tuesday. “You cannot simply rely on more revenue to solve this problem.”

• Related: Moodys: Cities must balance tax-exempts’ cash, contributions (Feb. 15)

(photo: Ted Nesi/WPRI)


Municipal bankruptcy bustin’ out all over, California edition

February 24th, 2012 at 1:13 pm by under Nesi's Notes

If it’s any consultation to Providence, the city isn’t alone in weighing a Chapter 9 filing, Bloomberg reports:

The City Council of Stockton, California, will be asked to vote next week to default on bonds and take the first steps toward bankruptcy, according to a person familiar with the council’s agenda.

City Manager Bob Deis has told council members that he intends to put an item on their agenda for a Feb. 28 meeting that would ask them to approve mediation with creditors as the first step required under a new state law before the city can seek bankruptcy ….

Deis also will ask the council to agree to stop making payments on municipal bonds beginning March 1, to suspend cash payouts to employees for unused vacation and sick leave, and to begin an investigation into the causes of the city’s fiscal crisis ….

Stockton, an agricultural center of about 292,000, is fighting to avert California’s biggest bankruptcy since Vallejo in 2008. The city has shrunk its payroll, including a quarter of the roughly 425-member police force. Twice since 2010 it has declared a state of fiscal emergency to force cuts on public employees.

• Related: Prof: Providence retirees may face 73% haircut in bankruptcy (Feb. 22)


Prof: Providence retirees may face 73% haircut in bankruptcy

February 22nd, 2012 at 6:00 am by under Nesi's Notes, On the Main Site

Providence Mayor Angel Taveras and city retirees don’t agree on much, but they’d probably both acknowledge that Providence’s pension system has a sizable long-term shortfall.

The math is pretty simple. Providence has promised its workers and retirees $1.32 billion in pension benefits, but it’s saved only $362 million to pay them. Thus, the city pension fund was short $958 million as of June 30 (based on market value).

As is often pointed out, there’s no immediate crisis there. The city must pay that $1.32 billion over decades – it’s not about to receive a bill for the other $958 million, an amount that’s far more than this year’s entire $614 million city budget.

But a more immediate crisis – a bankruptcy filing by the city – could force the question sooner. And if that happens, the retirees may discover their unfunded pension promises are worthless IOUs.

(more…)


City: ‘Not entirely clear’ how Prov. avoids bankruptcy, tax hike

February 11th, 2012 at 4:29 pm by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The Taveras administration acknowledged Saturday that Providence has no clear plan for closing the $22.5 million shortfall in the city budget, amid warnings of bankruptcy and with less than five months left in the fiscal year.

“Since taking office the administration has worked to close the gap on a $110 million structural deficit that was identified,” Taveras spokesman David Ortiz told WPRI.com. “Despite how far we’ve come, there is a $22.5 million shortfall remaining that is not within our ability to fix without help.”

“We are in conversations at the State House and with the City Council about the crisis that Providence is in, and at this point it’s not entirely clear how we get into the next fiscal year without facing the possibility of a supplemental tax increase or bankruptcy,” he said.

Brown University President Ruth Simmons, who’s been at loggerheads with Taveras since December over the school’s payments to the city, said in a statement Saturday there are “now productive and positive discussions with the city and state leadership to determine the exact nature of the University’s contributions.”

Read the rest of this story »


Central Falls receiver Flanders set to meet with Mayor Taveras

February 2nd, 2012 at 1:45 pm by under Nesi's Notes

Providence Mayor Angel Taveras will be getting some guidance from Rhode Island’s leading authority on municipal bankruptcy.

Taveras is scheduled to hold a meeting Friday with Robert Flanders, the retired R.I. Supreme Court justice who has been Central Falls’ state-appointed receiver since last year, a person familiar with the matter told WPRI.com.

Flanders made Central Falls the first Rhode Island city ever to file for bankruptcy last August after he failed to win voluntary concessions on pension benefits from that city’s retirees. He was reportedly spotted leaving Providence City Hall.

Taveras warned Providence’s retirees on Thursday that he will reduce their benefits “one way or another,” even if it means following Central Falls’ example and asking a bankruptcy court judge to do so as part of a Chapter 9 filing.

Tim White contributed to this report.

(photo: Ted Nesi/WPRI.com)


Bill to advance East Prov’s state aid gives gov broader power

January 11th, 2012 at 1:03 pm by under Nesi's Notes, On the Main Site

State Reps. Eileen Naughton and Larry Ehrhardt raised a point I haven’t heard discussed much during yesterday’s House Finance Committee hearing on the fast-moving bill to give cash-strapped East Providence its state aid earlier than scheduled. From Bryan Rourke’s Projo story:

As written, both the House and Senate bills would allow a municipality to request early payment of state education aid if it’s recommended by the director of revenue and the municipality is under a state-appointed budget commission or receiver. So the bills would also apply to Central Falls, which is under a receiver.

That would also apply to any other city that winds up in the second or third level of state oversight under the Fiscal Stability Act, which is certainly conceivable. Put another way, in the future this would place the power to advance state aid solely in the hands of the governor and his administration, without lawmakers’ involvement.

The House is scheduled to vote on the legislation [pdf] on Thursday afternoon. The Senate is scheduled to vote on its version [pdf] next Tuesday.


Paiva Weed open to local pensions fix – and $2M CF bailout

December 27th, 2011 at 12:34 pm by under Nesi's Notes, On the Main Site

The position taken by Senate President M. Teresa Paiva Weed will play a key part in determining what role the General Assembly will play in dealing with Rhode Island’s 36 locally run municipal pension plans next year. Jim Baron of The Pawtucket Times and The Woonsocket Call sat down with the Newport Democrat and got her take.

Paiva Weed told Baron she wants “sustainable, long-term structural changes, not simple quick fixes” for the local plans. Also interesting – she expressed some support for the idea of the state appropriating $2 million to boost pension benefits in Central Falls, which have been cut up to 55% since the city’s August bankruptcy filing.

Read the interview here.