Central Falls Receiver: Bankruptcy can be a good thing

by Eileen Norcross on March 13, 2012

in City Life, Debt, Public Choice, Public Finance, Tax and Budget

Central Falls, Rhode Island receiver Robert Flanders addressed the Rhode Island Statewide Coalition this weekend and took the opportunity to praise the process of bankruptcy for municipalities in deep distress. Reports The Pawtucket Times, “It’s not a horrible thing, it’s a thing we ought to be doing,” From his view bankruptcy allows a municipal government to make the necessary change to come back stronger. The stigma attached to bankruptcy he argues is short-lived. Another lesson offered: Rhode Islands small governments have built up expensive debts in the form of promises to public sector workers and it might be worth school districts and municipalities merging administrative expenses.

The core problem in cash-strapped, economically struggling Rhode Island towns is how to pay for the increasing costs for government without putting even more pressure on residents and businesses.

Richard Brodsky, who is currently on a board advising Yonkers, NY as the city tries to bridge a massive budget gap, writes at The Huffington Post, that the problems afflicting many municipal governments can be traced to budget gimmicks and attempts to “kick the can down the road,” noting that blame tends to be shifted to overly-generous employee pensions.

I tend to agree. Pension and health care costs are driving many (but not all) municipal fiscal crises. Years of misleading accounting gave all parties a false sense of fiscal security. This has led to benefit enhancements negotiated by unions and politicians, governments skipping payments, and excessive risk-taking with plan assets. There is plenty of blame to go around.

How to fix it? Begin with accurate numbers. Recently Mayors and executives from across New York State met in Albany to discuss the unforgiving and unavoidable math behind rising pension costs, with the Mayor of White Plains noting, “The road to hell is paved in amortizing pensions,”

Previous post:

Next post: