Central Falls, Rhode Island “not the odd black swan”

The city of Central Falls, Rhode Island is broke. The Wall Street Journal chronicles what led the one-time manufacturing hub into a downward fiscal spiral.

City Council President William Benson pins it on the John Hancock plan. In 1972 the city started a pension for police and firefighters that allowed workers to retire after 20 years of service, and earn half of their salary for the rest of their lives. Collective bargaining rules – put in place in the 1960s – led to an agreement that allowed pension spiking. Central Falls’ cost squeeze didn’t start yesterday. The problem was evident in 1991 when the state took over the schools because the city couldn’t afford to operate them. Today, labor costs make up 70 percent of Central Falls’ budget.

The city along with several others was put into receivership last year with a judge appointed to fix the city’s finances. His solution included tax increases which drove more people away. Raising property taxes isn’t going to be enough to fill the $80 million unfunded pensions and health care shortfall in a town where a quarter of the population live in poverty.

Other Rhode Island cities suffering this fate include North Providence, Pawtucket and Woonsocket. Rhode Island’s General Assembly is turning its attention to the crisis in the state’s municipal pensions noting that, “Central Falls may not be just the odd black swan, it may actually be the canary in the mine shaft.”

What is key to the story is that the fiscal collapse of Central Falls was driven by “extremely restrictive” collective bargaining agreements that made it impossible for the city to budget within its means. The result of these agreements: in 1991 the schools were temporarily pushed off Central Falls’ budget and taken over by the state. Today the town itself may disappear and merge with Pawtucket.