A Rhode Island City Turns to Pensioners to Avoid Bankruptcy
R.I. city faces $80 million in unfunded pensions and benefit programs.
July 20, 2011 — -- Central Falls, R.I.'s motto is "city with a bright future," but now its tomorrows are not only bleak but could be nonexistent.
The densely packed community of 19,000, comprising an area a little larger than a square mile, faces bankruptcy and is calling on its bravest and finest for help.
The city's 141 retired firefighters and police officers were asked at a meeting Tuesday night to voluntarily give up as much as half of their pensions. It's called the "big ask," and with the library and community center already shut down, the city is running out of options to fix its dire financial prospects.
"It came as a shock yesterday [Tuesday] when it was presented to the pensioners," said William Zachary Malinowski, who has reported for the Providence Journal for 26 years. "If they don't give up a good chunk, they may end up with nothing."
The city faces $80 million in unfunded pensions and benefit programs, and a $5 million to $6 million deficit that shows no sign of decreasing in the coming years.
Under the proposed pension plan, anyone who retired at age 55 after 30 years on the job would see their pension cut in half from about $40,000 to about $20,000 a year.
Col. Joseph Moran served 27 years on the police force, contributing 7 percent of his salary each month. Now retired, he stands to lose $1,000 a month. Making matters worse, workers here didn't participate in Social Security, so there are no other benefits to fall back on.
If retirees refuse the "big ask," Central Falls will likely have to declare bankruptcy, jeopardizing the entire pension system.
"I would advise a haircut looks better than a beheading," said a state-appointed receiver, Robert G. Flanders Jr.
Flanders would like a decision from the pensioners in the next seven days, Malinowski told ABC News.
"I could be wrong, but I don't see them taking it," Malinowski said. "I think this ends in bankruptcy."
Central Falls is not the first city to run out of the money needed to pay its retirees. In 2009, Prichard, Ala., stopped sending out pension checks to its 150 retired workers.
With the economy still sputtering and city budgets collapsing, similar "big asks" and broken promises could be coming to more towns.
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