Kevin O’Brien still hasn’t given up on winning back control of ABC 6.

O’Brien’s attorney, Americo Scungio, has informed the Rhode Island Supreme Court his client will appeal the March 22 sale of WLNE-TV in a court auction, judiciary spokesman Craig Berke told WPRI.com.

Scungio did not respond to a phone message left on Monday.

Citadel Communications of Bronxville, N.Y., took over management of WLNE on Sunday after buying the station on auction in a deal valued at $5.8 million, including $4 million in cash. The FCC still must approve the transfer of WLNE’s license to Citadel.

At the time, Associate Justice Michael Silverstein denied an objection by O’Brien, who argued its court-appointed receiver Matthew McGowan was not seeking nearly enough money in exchange for the station. He said WLNE earned a profit in 2010, and argued that its positive cash flow should allow the receiver to continue operating the station while seeking more for it.

O’Brien paid $14 million in 2007 to buy ABC 6 from Freedom Communications. He asked Silverstein to place the station in receivership last summer, saying in a court filing WLNE was “insolvent and unable to meet its obligations as they come due.”

The notice of appeal is the only information about the appeal on file right now, Berke said. A transcript of the Superior Court proceedings has been ordered, and that must be completed before the high court’s clerk can add the case to its docket, he said.

(photo: Ted Nesi/WPRI)

In his decision [pdf] upholding Rhode Island’s new municipal receivership law on Tuesday, Supreme Court Justice Francis Flaherty outlined the sequence of events that led to Central Falls’ initial filing and the state’s subsequent takeover of the city. But did he get the chronology right?

Here’s an excerpt from Flaherty’s decision (emphasis mine):

And thus, believing there was no other viable solution to the city’s dire financial plight, the mayor and city council in May 2010, petitioned the Superior Court for the appointment of a receiver, a petition that was granted by the court.

At the same time, however, legislation that would enact a major revision to chapter 9 of title 45 was working its way through the General Assembly. Signed into law in June that same year, the legislation prohibited municipalities from seeking the appointment of judicial receivers, but instead authorized the director of the Department of Revenue to implement a defined process to restore stability to a fiscally imperiled city or town.

I don’t think that’s accurate.

My recollection from reporting on the situation at the time was that both the Carcieri administration and the General Assembly were caught off guard when Central Falls filed for receivership, and they had to scramble to respond. And as far as I can tell, the evidence backs up that account, rather than Justice Flaherty’s.

First and foremost: the text of the actual receivership bill [pdf] says it was introduced on June 8 – just two days before the General Assembly passed it, three days before Carcieri signed it into law, and three weeks after Central Falls filed for receivership on May 19. So technically speaking, the bill was only “working its way through the General Assembly” for three days in early June.

Perhaps, though, the legislation was quietly being drafted behind closed doors prior to May 19, then rushed through the House and Senate after Central Falls’ filing? Contemporaneous reporting makes that look doubtful, too.

Here’s what I reported in a PBN article on May 20, the day after Central Falls filed for receivership:

Larry Berman, a spokesman for the House leadership, said he had not heard any discussion about the General Assembly taking action to either allow Chapter 9 or do something else to aid Central Falls.

And then here’s what John Hill reported in the Projo on June 12, two days after the new receivership law was signed:

It was the city’s May 19 filing for a receivership, the state-law version of federal bankruptcy protection, that triggered the drafting and passage of the legislation.

And this from the General Assembly’s own press release on June 17:

The legislation, sponsored by House Finance Committee Chairman Steven M. Costantino and Senate Finance Chairman Daniel Da Ponte, was created in response to Central Falls’ entrance into receivership last month and to financial struggles facing other communities, and is aimed at protecting all Rhode Island communities’ bond ratings from potential fallout.

On top of that, a May 21 Projo story by Hill and Steve Peoples that rounded up reactions to Central Falls’ receivership filing carried no mention of pending legislation to deal with the problem from Governor Carcieri or anybody else:

“This is all new ground. It’s new ground for the courts as well,” Governor Carcieri said. “It’s obviously very concerning.”

The governor said his office may argue against the move in Superior Court, which will ultimately decide if and how an independent “receiver” may reorganize Central Falls’ finances, a state process comparable to federal bankruptcy reorganization.

“That’s one of the things we’re evaluating right now,” Carcieri said of trying to influence the court case. “I’m concerned about the ramifications of this on other municipalities, on how we’re looked upon as a state if it’s easy for a town — I’m not saying they do it lightly — but if, suddenly, you can go into receivership.”

I’m not saying this is a huge deal, but it did seem worth correcting the historical record, particularly since former Auditor General Ernest Almonte told us in January that state officials could have seen Central Falls coming if they’d been paying attention.

The national press has taken another whack at our local piñata, Central Falls, with Wall Street Journal editorialist Allysia Finley doing the honors this time in an op-ed piece headlined ” ‘The City With a Bright Future’—$80 Million in the Hole.”

Unsurprisingly considering her employer, Finley pins the blame for Central Falls’ myriad problems squarely on its municipal employees and their unions. To her credit, Finley actually traveled to the city to speak with people there before putting pen to paper. Here’s how she opens:

Welcome to Central Falls. Motto: “The City with a Bright Future.” Population: 19,000. Median household income: $22,000. Elevation: more than $80 million under water.

Visitors to this tiny town on the banks of the Blackstone River would never guess that it was once a prospering manufacturing hub. Thousands of Irish and Scottish immigrants flocked here in the 19th century, drawn by opportunities to work in the mills and mines. But since Rhode Island’s public employees received the right to collectively bargain in the 1960s, government unions have driven Central Falls into the ground.

(Did Irish and Scottish immigrants really flock to Central Falls? I always thought it was more of a destination for French-Canadians.)

Finley goes on to lay out the now familiar Central Falls litany: its nearly insolvent John Hancock pension plan; its 1991 fiscal crisis; its moribund economy; and its dysfunctional high school. The details haven’t changed, but they’re still depressing.

I’d add two points. First, Finley actually understates the size of Central Falls’ financial hole – she highlights that $80 million estimate of the city’s unfunded liability for retiree benefits, but leaves out the additional $31 million in debt payments it owes between now and 2028, according to receiver Mark Pfeiffer.

That puts Central Falls’ long-term liabilities at well over $100 million – this in a city with an annual budget of only $17.8 million last fiscal year. (As always with those types of figures, keep in mind that the city won’t need to come up with the full amount all at once – payments are spread out over a couple decades.)

Finley goes on to write: “Too bad Central Falls was denied [permission to file for Chapter 9] bankruptcy, which would allow it to break its collective-bargaining agreements and force public employees to accept significant cuts.”

I’m hearing this idea a lot lately – that filing for Chapter 9 would be a fairly clean way for cities and towns, and perhaps even entire states, to jettison their deals with their workers.

But Bloomberg columnist Joe Mysak – who’s been covering municipal finance since 1981, and thus knows a lot more about the topic than either Finley or yours truly – throws cold water on that idea:

There’s nothing easy, or convenient, or cheap, or quick, or even predictable about Chapter 9. Those who talk about municipal bankruptcy as if it is any of those things, and the blogosphere is alive with such opinions right now, don’t know what they are talking about. …

“It’s not a strategy,” said [bankruptcy attorney John Knox] in an interview Jan. 4. “All Chapter 9 does is give you breathing space to rearrange your affairs.”

That includes a municipality’s general obligation debt and, yes, collective-bargaining agreements. The bankruptcy judge is there to help the parties negotiate a plan of adjustment, not as some avenging angel intent on gutting the police union.

Finley is silent on whether Central Falls’ bondholders should share in the pain during her proposed bankruptcy restructuring. If the city’s retirees take a haircut on their $80 million in promised benefits, would its bondholders be forced to do the same on the $31 million they’re owed? That idea – and the potential fallout if it happened – likely sends a shudder through bondholders and public finance directors alike.

Ernest Almonte in his office

The top priority of the fiscal review panel appointed last week by Providence Mayor Angel Taveras is to figure out how deep in the red the city is right now, according to retired R.I. Auditor General Ernest Almonte, one of the panel’s five members.

Providence is still operating without a formal budget six and a half months into the fiscal year after former Mayor David Cicilline and the City Council failed to agree on a tax-and-spending plan for 2010-11. Cicilline sent the council a revised $643 million budget proposal last month.

Taveras has asked Almonte and his four colleagues to deliver their report on the financial situation by early February. The city’s annual audit for 2009-10 won’t be finished until the end of this month, four weeks later than expected.

Almonte told WPRI.com the fiscal panel, chaired by new Director of Administration Michael D’Amico, plans to give Taveras a deficit estimate for the next 18 months, which would cover the rest of this fiscal year and 2011-12, too.

The new mayor “is just walking into his position now, with no control over the last six and a half months,” Almonte said during an interview last week at his Warwick office. “But whatever deficit there is, he has the responsibility to deal with over this short period going forward.”

Almonte also admitted to being “concerned” about Providence’s fiscal health, particularly after Central Falls’ descent into receivership. Here’s what he said:

I’m concerned about Providence. I look at the City of Central Falls as really being just one of many cities and towns in our state that are teetering on financial problems. I’ve talked to people about that being the canary in the mineshaft, that warning shot that other places are having problems.

And that’s exactly the case when you look at Providence, with their unfunded pension liabilities, their unfunded post-retirement benefit liabilities, their overall structural deficit they have – you combine all of those, and how are you going to pay for it? Who’s going to pay for it?

Almonte said a Central Falls-style receivership crisis was “less likely” in Providence because of the quick actions Taveras is taking to get his arms around the situation there. “It’s very much a small percentage chance that that could happen,” he said.

Almonte also offered early praise for Taveras, whom the former auditor general had met casually prior to being asked to join the fiscal panel. “I’m quite impressed with him,” Almonte said.

(photo: John Villella/WPRI)

R.I. Superior Court Justice Michael Silverstein this morning upheld the state’s new municipal receivership law and the Carcieri administration’s using it to put Central Falls under the control of retired judge Mark Pfeiffer.

As I mentioned back in July, the big constitutional question here was whether or not putting a city or town into receivership represented a permanent change in a municipality’s form of government. Administration lawyers and Pfeiffer argued it does not, and therefore the new law would withstand judicial review under a 1994 R.I. Supreme Court precedent. Central Falls Mayor Charles Moreau and four out of five City Council members argued the opposite, and lost.

I left a message for Michael Kelly, the attorney who represented Central Falls, to see if he plans to appeal Silverstein’s ruling. I’ll update when I hear back.

I’ve been reading Silverstein’s 48-page decision [pdf], and it paints a dire, if unsurprising, picture of Central Falls’ finances – huge deficits this year and next, more than $10 million in debt, and just $4 million saved to cover more than $35 million in promised pension benefits. Here’s how the judge explains why state leaders freaked out after Central Falls’ unilateral decision to file for standard receivership in May, which led to quick passage of the law upheld today:

State officials were told by municipal finance advisors and rating agencies, that as a result of such receiverships, the capital markets would view debt financing to Rhode Island municipalities as extremely risky and it would become more expensive for municipalities to borrow in the capital markets.

Silverstein is particularly enamored of the law’s five-step process for dealing with a financially troubled city. It’s a bit like choose your own adventure for municipal finance. If things are bad but not terrible, the state can appoint a fiscal overseer with limited powers; if it’s worse than that, the state can create a budget and review commission; and if it’s really bad, the state can put in a receiver like Pfeiffer.

After that, one of two things can happen depending on how events unfold – if the city’s finances stabilize, a new finance department is appointed to watch over them for five years; and if even the receiver can’t solve the problem, the city or town can file for Chapter 9 bankruptcy in federal court.

The judge also noted that cities and towns’ right to self-government “is not unfettered,” because matters of statewide concern remain in the General Assembly’s hands even if they affect municipalities. With that in mind, he agreed with the administration that an individual community’s financial collapse would be a matter of statewide concern because of the cascade effect it would have on other places’ finances.

Silverstein slapped down Moreau and co.’s argument that the new receivership law singled out Central Falls – which would be unconstitutional – and, as the administration had expected, cited that 1994 R.I. Supreme Court decision as precedent. He writes:

Although the Act may have applied retroactively and affected Central Falls differently than other municipalities, on its face and by its terms the Act applies equally to all cities and towns, including Central Falls, and is therefore a statute of general application.

Silverstein did reject the administration’s argument that Moreau and co. were acting in bad faith by challenging the law’s constitutionality after they themselves had filed for receivership in May, agreeing that their original filing did not automatically mean they were OK with the law that passed soon after.

All in all, an interesting day for students of Rhode Island law and the state’s centuries-old debate over local control.

Update: Kelly, Central Falls’ lawyer, told the Associated Press he plans to appeal the ruling. So the legal battle may not be over yet.

Update #2: Steven Brown, longtime executive director of the American Civil Liberties Union’s Rhode Island chapter, issued a statement criticizing the ruling. “This is a sad day for democracy in Central Falls and every other municipality in Rhode Island,” he said, adding that “there are virtually no limits” on the powers of the receiver and that Central Falls residents have “effectively been disenfranchised.”

When Central Falls filed for receivership in May, the cash-strapped city’s move shocked bond markets and led to the rapid passage of a new state law to manage the process.

At the time of Central Falls’ original filing, Rhode Island state law did not allow cities and towns to file for bankruptcy under Chapter 9 of the U.S. code; the new law includes a provision that now allows it in extreme circumstances. (States are not allowed to file for bankruptcy under federal law, contrary to what Kerry King thinks.)

But Chapter 9 is still an unwieldy process, and cities and towns are unlikely to use it even as they find themselves squeezed by debt and pension payments, according to The Wall Street Journal’s David Wessel:

Recent close calls in Harrisburg, Pa., and Central Falls, R.I., spark predictions that the next phase of the financial crisis will be a tsunami of municipal bankruptcies and defaults. Muni-bond experts at rating agencies and bankruptcy lawyers assure us that isn’t likely. …

After Vallejo, Calif., won a federal judge’s OK to use Chapter 9 in 2008 to extricate itself from union contracts, there were widespread predictions that other cities would follow.

“Two and a half years later that hasn’t been the case,” says Robert Kurtter, who oversees state and local government ratings at Moody’s Investors Service. “What municipalities have discovered is that it is very expensive, the outcomes are uncertain because the rules are uncertain and it’s not clear what the municipality gains.” …

The future, though, may not resemble the past. The magnitude of the problem is daunting. State and local governments have borrowed $2.4 trillion as of mid-2010, according to Federal Reserve data. That’s up 35% from five years ago.

Between Central Falls and WLNE-TV ABC 6, not to mention a number of lesser-known entities, the bankruptcy-like section of Rhode Island state law known as receivership has been getting quite a workout lately.

Not being a lawyer, I have been curious why insolvent organizations were turning to receivership rather than the federal bankruptcy courts. (Though in Central Falls’ case, doing so was not possible until the governor signed the new law on municipal finances last month.)

During an interview for a story that will come out next week, I put that question to Allan Shine, the Providence attorney who is representing WLNE’s current ownership in its case. The bottom line? Receivership is simpler. Here’s what he said:

With a Chapter 11 [aka, a business bankruptcy filing] – which you and your colleagues talk about in the news with companies such as GM or Enron or United Airlines – you’re dealing with huge, huge legal and accounting fees – millions and millions and millions of dollars a month in big Chapter 11s. It’s the nature of the beast with a huge company that has assets in every state and sometimes around the world, and everyone has lawyers and they can be tremendously expensive.

In Rhode Island, we don’t have United Airlines at least, and so we don’t have huge, mega-Chapter 11s. And over the years, members of the bar and the bankers and the people who are interested in creating value and helping out distressed companies, they have actually made use of the receivership process as a means for smaller and middle-sized companies to reorganize or to be sold as a going business, without the expense and the formalities of the federal court proceedings.

As an example, Shine pointed to Bess Eaton, the Westerly-based coffee chain that filed for bankruptcy in 2004 and was bought by Tim Hortons. Bess Eaton had to file in federal bankruptcy court because it had locations in a number of different states, and receivership only covers cases where everything is in Rhode Island, he said. (Shine represented Bess Eaton in its filing.)