City in Bankruptcy Asks to Void Union Contracts Crushing Finances

Townhall.com ^ | August 2, 2011 | Mike Shedlock

[Kaslin]

At long last ‘Dire’ Situation Forces Rhode Island City of Central Falls Into Bankruptcy

Central Falls, Rhode Island’s poorest city, filed for Chapter 9 bankruptcy protection as it struggles to meet its pension obligations.

The petition was filed today after state officials failed to persuade unionized police, firefighter and municipal retirees to accept voluntary benefit concessions, according to a statement from Robert Flanders, a judge appointed to oversee the city’s finances. Flanders said he asked the court to reject existing collective-bargaining agreements with the unions.

Central Falls, a city of about 18,000 located about 6 miles (9.7 kilometers) north of Providence, is the fifth municipal entity to file for bankruptcy this year, compared with six in all of 2010, according to data compiled by Bloomberg. The filing followed last week’s move by lawmakers in Jefferson County, Alabama, to postpone a vote on proceeding with what would be the biggest U.S. municipal bankruptcy.

The Central Falls pension plan was expected to run out of assets by October without additional funding or significant concessions from both current employees and retirees, according to a June 17 report from Moody’s Investors Service.

Frank Bailey, a U.S. bankruptcy judge in Massachusetts, will oversee the bankruptcy for the city, according to a court filing.

Police and Firefighters Asked to Accept 50% Pension Haircuts

On July 23, 2011 I reported Central Falls Gives Ballots to Police and Firefighters Asking for 50% Pension Reductions or Risk Losing Everything in Bankruptcy Court

In a scene that is going to play out in scores of cities across the nation, unions are going to come to grips with the fact that pensions are not sacrosanct. Please consider Rhode Island city asks retirees to cut their pensions

Simple Rule

What cannot be paid won't. Taxpayers have had enough. Central Falls is a small and troubled city, but this same scene is going to eventually hit Pittsburgh, Oakland, Houston, Detroit, San Francisco, Los Angeles, Chicago, and most likely every major city in the country.

Benefits are untenable. The sooner something is done, the better off everyone will be.

Things That Must Change

1. Defined benefit pension plans for government workers must end
2. Davis-Bacon and prevailing wage laws that drive up costs of Federal projects and clobber city and municipal governments must come to an end
3. National right-to-work laws must be enacted
4. Collective bargaining of public unions must end
   
5. Existing pension benefits must be renegotiated

Unions will not like any of those but they are all going to happen.

I am disappointed that Rand Paul and others in the Senate did not take up points 2 through 4 in the budget negotiations. Small tax hikes in return for those items would have been well worth it.

Vallejo Precedent: Union Contracts Can Be Voided

Central Falls retirees said no, and now it is up to the courts. Please recall there is already precedent in Vallejo, California for union agreements to be tossed out in bankruptcy.

Flashback March 17, 2009: Judge Rules Vallejo Can Void Union Contracts

In a groundbreaking ruling as well as a rare victory for common sense and the overall good of taxpayers, Bankruptcy Judge Rules Calif. City Can Void Union Contracts.

The Central Falls' police and fire fighters are taking a big chance. There is no realistic alternative to massive cutbacks in those pension agreements. Raising taxes would drive out homeowners and businesses and that is the last thing Central Falls needs.

Expect this type of action to hit major cities within the next few years. The sooner the better because public union pension contracts are untenable.

[E. Pluribus Unum]

I always wondered how those big cop-union pensions could be... dare I say it... sustainable.

Turns out they aren't.

[Graybeard58]

Police and Firefighters Asked to Accept 50% Pension Haircuts

Given a choice between half and none, I'd opt for half.

[immadashell]

To break zero, break the unions first.

[JPG]

An attorney involved with the fight over the lack of funds presented the union pension types with a plan. They could vote to cut their pensions in half and enable them to keep getting something or they could vote no to the offer. So, their choices were:

A: A haircut.

B: A beheading.

The union folks voted for B...so be it.

[Oldeconomybuyer]

Tip of the iceberg...

[CPT Clay]

Let this be a warning to all Municipal workers!

[vette6387]

Or as Rev. Wright would say: “de union chickens dey be comin’ home to roost.”
I only hope this stuff hits California too. Our town’s first a$$hole Chief of Police retired out about 10 years ago with a pension of around $60,000. Today he is getting about $130k (these data are public information). This bunghole told me that “he earned his pension and that welfare recipients would take it in the shorts before he did.” Here’s hoping he’s really wrong.

[randog]

The union folks voted for B[eheading]...so be it.

Perhaps all these unionistas feel guilty about their private-sector counterparts losing their 401K's....

Or maybe not.

[wac3rd]

In my suburban town, on our street is a retired Contra Costa County Sheriff, retired San Francisco cop, four active Alameda & Contra Costa firemen, two retired firemen, a retired Oakland cop and a disabled city employee.

Someone works for the Water Dept. and someone else works for a defense contractor (DOD civilian employee).

All have new cars
Remodeled homes
Pools, hot tubs
Almost all have boats
All have campers, RV’s and/or fifth-wheel type rigs

90% of highest year’s pay + COLA + lifetime Kaiser Permanente for $1.99/person per year.

I will give you an example of a California State worker (a relative) who worked at a Cal-State campus for 5 years...this is how the pension works:

She worked there 5 years, putting in $200/month or $2,400/annually; CalPERS matches that with $2,400 (100% match), so she puts in $12,000 over 5 years and the State of CA puts in $12,000 ($24,000 total) Including returns on investments, call the balance $28,000 ($27,849 at at 5% return, year-over-year).

She quit the first day she could quit and receive a pension, literally month 61.

She collects $550.00 per month and has for the last 5 years, it has increased via COLA up from $500/month, typically a $10/monthly increase per year.

So, assume the average is $525 a month x 60 months or $31,500, she has already exhausted what she “put in” including the State’s 100% match of what she contributed, which was also, taxpayer money.

Her health insurance would be $750/month now, which is not included, so, assuming health insurance being $650/month on average for 5 years, the payout for free State-covered Kaiser would have been $39,000 over the past 5 years, she paid $10 for her healthcare, with no (0) deductable, if she stays in network (HMO).

She made $60K her last year, so the pay was probably 10-20% over-market for her position, while she worked for Cal State.

Let’s review...$12,000 in deducted pay for 5 years = $70,500 in cash and healthcare benefits. Not to mention the regular salary she earned while working.

Can anyone see why the nation is completely broke?

[wac3rd]

What town in CA?

[pogo101]

Coming soon to a California city near you. (Probably not for the state itself, though: States, unlike municipalities, are not eligible to be debtors under US bankruptcy code.)

[Mr. Peabody]

A dominoe tumbles.