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Central Falls Reciever: State Appointee, Not Woonsocket, Decides Bankruptcy

Judge Robert G. Flanders outlines route to Chapter 9 filing, pros and cons.

 

If Woonsocket winds up in bankruptcy, it will be the decision of a state-appointed reciever, Judge Robert G. Flanders said at the Elks Lodge at 380 Social St. Thursday night.

Flanders spoke to a crowd of about 70 people at the invitation of taxpayer advocacy group Woonsocket Taxpayer's Coalition. City Council members John Ward, Dan Gendron, Albert Brien and Robert Moreau also attended.

Flanders, an attorney and former associate judge with the RI Supreme Court for eight years, was appointed by Gov. Lincoln Chaffee as reciever for Central Falls in 2011 and is guiding that city through Chapter 9 bankruptcy, said he was not speaking as a representative of the state, only as someone who knows the laws governing recievership and bankruptcy for cities and towns. Also, "I'm not here to advocate for a particular path ahead," he said.

It will be a state appointed reciever who decides whether Woonsocket will go into bankruptcy, Flanders said, not the city itself.

Under the Fiscal Stability Act, Flanders said, two big criteria the state considers before intervening in a city's management are a drop in its bond rating, and an inability to balance its budget. He said there are about 20 cities in the state that would qualify.

Once the state has decided to intervene, there are three levels of oversight: A fiscal overseer, a budget commission, or, "Most intrusive of all, is a reciever," Flanders said.

Rosemary Gallogly, the state's director of revenue, acts as the gatekeeper for this process, he said. A city or town can ask for intervention with an overseer, commission or receiver, but the state needs to approve it first.

"Until or unless the state decides that it's appropriate for some sort of  state intervention, the city or town is left to its own devices to try to work its way through," Flanders said.

Once the state intervenes, there's a chance of disenfranchising elected officials, because the appointed person or persons are only focused on getting the budget in line, and their decisions will override those of local officials, Flanders said.

State appointees can't modify contracts or agreements that the city has made. That can only be done through Chapter 9 bankruptcy. In RI, the only appointee  authorized to take a city or town into bankruptcy is a reciever.

Flanders said the reciever needs three criteria in place before for filing Chapter 9 Bankruptcy: State authorization, a good-faith attempt to renegotiate agreements and contracts, and insolvency - an inability of the city or town to pay its debts. Insolvency is determined only using general revenue, not assets, Flanders said.

A bankruptcy judge must approve a plan of debt restructuring that could include new employment terms, health care plans and new pension benefits. The reciever must then draft a five-year plan for balanced budgets.

As reciever, Flanders said, he had to close the Central Falls library, lay off a third of the city's workers, and close the community center. The decisions made a lot of people resentful. "This isn't a panacea, by any means," he said, "You only would go there, in my opinion, as a last resort."

"It would be a misake to think that going to state intervention in any of the forms I've mentioned, including a recievership, would necessarily provide relief from taxes," Flanders cautioned. In Central Falls, taxes hadn't risen very much in many years, so he had to impose a supplemental tax of 19 percent, and plan out 5 years of 4 percent increases.

"What happens if the city does not make the requirements you spoke of for bankruptcy?" asked Rev. Dorian Parker.

"It defaults," Flanders said, and employees and creditors don't get paid. Under RI law, bond holders would get paid from whatever revenue the city has first, Flanders said.

James Cournoyer, a member of the WTC, asked Flanders about his own pension from the state, given that he had reduced those of the employees of Central Falls. Flanders replied that he wasn't a judge with the state long enough to collect a pension.

Cournoyer also asked about the cost of experts hired to aid the Central Falls bankruptcy. Flanders noted that the bankruptcy experts, actuaries, labor lawyers and negotiators did cost Central Falls about $2 million, "But you have to balance that against the $6 million annual savings," he said.

"How do you take your coffee?" asked Roland Michaut, another member of the WTC.

"I have a taster," Flanders said.

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