In the trenches of pension reform

COURT IN ORDER: Former Supreme Court Justice Robert G. Flanders was appointed receiver for Central Falls' bankruptcy proceedings. He says lucrative collective bargaining agreements are the root of the pension problem in many communities. / PBN PHOTO/BRIAN MCDONALD
COURT IN ORDER: Former Supreme Court Justice Robert G. Flanders was appointed receiver for Central Falls' bankruptcy proceedings. He says lucrative collective bargaining agreements are the root of the pension problem in many communities. / PBN PHOTO/BRIAN MCDONALD

As the state-appointed receiver for the Central Falls bankruptcy, former Supreme Court Justice Robert G. Flanders Jr., 62, has had the difficult task of trying to impose fiscal responsibility in a city where it was sorely lacking.
Appointed to the task by Gov. Lincoln D. Chafee in January, Flanders proposed a five-year plan that cuts benefits to retirees, imposes givebacks on unions and raises property taxes.
Last week, the city’s police, firefighters and municipal workers agreed to new union contracts that include a funded pension plan.
Flanders said the city will likely need some form of state oversight going forward, so it “doesn’t fall back into its old ways.” And he thinks the city’s bankruptcy played a role in spurring political leaders to overhaul the state pension system.
“It became a bloody shirt that people were able to wave in the service of pension reform,” he told Providence Business News.

PBN: What does last week’s agreement with the unions mean for the city?
FLANDERS: It means that we don’t have to fight over this in bankruptcy court and we can get on with the business of providing public safety and other critical services to our citizens without pointing fingers at one another. And this is really a new beginning for the city, a time to now take pride in what we’ve accomplished and take the city up from the ashes of bankruptcy towards a new and more exciting and more economically prosperous world from the one which we’ve been mired in.

PBN: So this negates the bankruptcy?
FLANDERS: Well, this negates the fight that would have occurred in a bankruptcy court over whether the city was eligible to file for bankruptcy; over whether the statute that the state enacted giving preference to bondholders was legal; whether the receiver had the right to reject the contracts that previously existed and unilaterally impose his own terms of how the arrangement should work. All that goes by the board in favor of these new arrangements, which will govern for the next five years. Basically this is substantiality what our plan was when we implemented our five-year proposal.

PBN: What is the lessen for other communities from the Central Falls situation?
FLANDERS: The lesson is that if you enter into very expensive agreements with your unions and your retirees then you better find ways to fund them and not ignore the financial implications of those agreements. And typically that calls for raising taxes or finding other ways of revenue to pay for them. But I would hope the better lesson is not to enter into those agreements anyway and take more prudent ways to manage the city that doesn’t involve “Cadillac” health care plans and unsustainable retirement benefits that allow people to retire at 40 and get paid the rest of their life a substantial portion of their pay and while they’re getting money from other jobs.

PBN: So you say they should have raised taxes and that would have eliminated the pension problems?
FLANDERS: Not necessarily, but it would have … mitigated [the problems]. In the case of Central Falls they didn’t raise taxes [enough] over a 20-year period, whereas the rest of the taxes in the cities and towns went up 128 percent. So Central Falls, which is poorest city in the state [raised] it’s taxes maybe 2.8 percent over a 20-year period, while other cities on the average were raising it 4.3 percent a year. And Central Falls, at 2 percent or something like that because they said they weren’t raising their taxes so they weren’t getting the revenue to fund these things, kept entering into contracts and agreements … called for these lavish Cadillac health care plans and other benefits. [They] allowed people to retire after 20 years of service when they were 40 years old and gave them COLAs based on what the person who is currently working in the job is getting, as opposed to some other more objective measure. [That] resulted in people making much more in retirement than they ever were making in the job.

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PBN: Do you think the Central Falls bankruptcy helped spur state leaders to action on pension reform?
FLANDERS: Well, I listened to the pension debate and I was sort of reminded of what happened after the Alamo. People kept saying remember “Central Falls or let’s not forget what happened to Central Falls,” so it became a bloody shirt that people were able to wave in the service of pension reform. And I hope if nothing else it continues to serve as a grim reminder of what can happen if you don’t pay attention to the kinds of things that one needs to reform, if you’re going to solve this problem at the municipal level and not just at the state level.

PBN: What laws are out there to protect residents of communities facing bankruptcy? FLANDERS: First off, many cities, not just Central Falls, are experiencing problems with funding their pension obligations both for retirees and for the health care commitments they’ve made to them through collective bargaining agreements or through ordinances or other state laws that require certain payments to be made … all of these obligations have been entered into and you got people who are retiring at ever-younger ages and living ever-longer lives, with the cities and town not adequately funding the requirements on health care obligations because there’s no mandate for them to do so.

PBN: Is there a law requiring them to do so?
FLANDERS: They’re all local and not statewide or most are nonexistent, and therefore it’s left up to each city and town to decide whether they’re going to fund them properly.

PBN: How did the problem of underfunded pensions begin?
FLANDERS: The root of the problem, in my opinion, is the … whole idea of collective bargaining in the public sector when unions donate to the politicians and the politicians give back in the form of lavish pensions and health care benefits that they don’t have to worry about because they don’t have to pay for it immediately. And by the time this comes back to hurt the town and the taxpayers, they’re long gone. So, it’s a horrible system.

PBN: So what can be done about it in the courts now?
FLANDERS: Rhode Island enacted a law that allowed the state to appoint a receiver or some other type of fiscal overseer like you see in East Providence. And only a receiver is entitled to allow a city to go through bankruptcy … and bankruptcy enables the city to immediately restructure its debt obligations and reject all these contracts that were crushing it with debt burdens that it couldn’t afford.

PBN: Can you describe was it has been like for you personally playing the role of a “bad guy” in dealing with retirees faced with losing hard-earned benefits?
FLANDERS: All at once, it’s been challenging, interesting, stressful, engaging and rewarding.

PBN: Why rewarding?
FLANDERS:<strong> Because it’s been an incredible learning experience and it involved enormous levels of complexity and managing a of wide-ranging team of experts and coordinating every one to sing from the same page. •

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1 COMMENT

  1. Ask Flanders why Central Falls reorganization didn’t include any contribution to their own schools and why weren’t taxes there raised to match the average property tax increase in RI compounded from 1990 to present.

    CF has been on a 22 year field day dumping their educational costs onto tax payers elsewhere in the State. The new Fair Funding Formula that is stripping other communities of State Funding also shows Central Falls capable of paying $12 million a year in self funding (which would still be the lowest rate in the State) but they continue to pay zero.

    The same formula with the same data and criteria yet they still pay ZERO. I call Flanders a failure in that light.