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.”