Cedar Falls, Rhode Island is about to enter bankruptcy largely as a result of its inability to make good on pension promises to retired police and firefighters. Those promises in large part weren't even made by the city but were made on its behalf by a panel of arbitrators appointed to settle the city's labor disputes in accordance with state law.
Municipalities are obligated by state law to negotiate with unions who represent police and firefighters. If a municipality and its unions can't agree on settlement terms, the matter is referred to binding arbitration and the decisions about wages and benefits will be made by the arbitration panel. So that's what happened over the years.
The "fair minded" but apparently financially ignorant arbitrators then sent the bill to the Cedar Falls taxpayers. Unfortunately, the poor taxpayers of Cedar Falls don't have the money to pay. The municipality has already closed its library and a community center due to it fiscal problems, but it has no such authority to reduce or cancel its retiree benefits for police and firefighters. Such is the law of Rhode Island.
Thus, how much the good citizens of Cedar Falls could afford to pay wasn't a factor under consideration for the arbitration panel when making pension benefit decisions for the Cedar Falls police and firefighters. In fact, if Cedar Falls were to properly make payments to its funds for retiree payments, an estimated 57% of its property taxes would have to be allocated solely to police and firefighter pensions. Obviously, that obligation doesn't leave much with which the municipality can do anything else for its citizens.
Please see A Small City's Pension Fund Rattles Rhode Island for a full discussion of what this means to both Cedar Falls and many other Rhode Island cities similarly situated. It's also going to weigh heavily on the state of Rhode Island. A sad story from start to finish.
The citizens, cities, state, unions, arbitrators, police and firefighters all bear responsibility for this sad state of affairs. The result is that the retirees have ended up with an unaffordable rich package of benefits (e.g. retire at full pension after 20 years of service at age 45 and also receive health benefits for life) for which there is not enough money available. Now the mess is real and probably insoluble.
Cedar Falls is a small impoverished city and needs what it has no way of getting -- $80 million -- to make good on the pension promises made on its behalf by a panel of arbitrators appointed in accordance with state law. This $80 million shortfall is needed to fund the benefit payments for 214 police officers and firefighters. That's for a city whose residents have a median household income of $33,520 and where the average single-family house is valued at $130,000. Thus, there is no way the city's taxpayers can make good on these totally underfunded and even unfundable obligations.
While this is partially the story of a city doing the wrong thing, it's perhaps an even better example of how the officials of Rhode Island have ignored financial reality when it comes to public employees' retirement benefits needed to be financed with local tax dollars. The applicable Rhode Island law requires cities to negotiate with unions representing police and firefighters with respect to wages, hours and all other conditions of employment, including benefits. When the parties are unable to reach an agreed upon settlement, the law calls for binding arbitration. The real costs of these benefits have been ignored by the arbitrators and the unions seeking them. So Central Falls is broke, and its library and community center have closed. What's next?
Our system of government is based on representative competency and fiscal responsibility. Not much of that, if any, is in evidence in this case, either in Cedar Falls specifically or in Rhode Island generally.
My guess is that we'll see lots of similar situations in the months and years ahead.
Thanks. Bob.
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