Retirees hit amid CF bankruptcy endgame

CENTRAL FALLS, R.I. (WPRI) - Central Falls is being carefully and painfully nursed back to health.

Last August the tiny city became the first Rhode Island municipality to file for bankruptcy, weighed down by $80 million in retirement benefits promised to its employees, deep cuts in state aid and a moribund economy. Its 19,376 residents - more than half of them Hispanic and 42% of them immigrants - have a median household income of $34,389, more than $20,000 below the state average.

National experts warned the bankruptcy process could drag on for years. But a concerted effort by the Chafee administration - and a lack of alternatives for its retirees - have Central Falls near the finish line after less than a year. The city could be out of bankruptcy within three months, but the situation is bittersweet, according to Rosemary Booth Gallogly, the state's director of revenue.

"We're not really proud of what came out of that," Gallogly told "While we're really pleased with how our hard work has paid off, we're not really gleeful because there were a lot of people who were hurt by it. So it's kind of a balance. We really haven't tried to say, wow, we really got this done."

'They're not going to help'

Those people include Paul Gagnon, a retired Central Falls firefighter who's battling stage four prostate cancer. Gagnon, whose story will be told Monday night on Eyewitness News at 11 on WPRI 12 , saw his accidental disability pension cut by almost a third after the city filed for bankruptcy.

The father of two is struggling to hold down a job in West Warwick and keep up with his medical bills, but the city says there are no exceptions to the pension cuts. "When you become a fireman or a public servant, they tell you if you get sick or hurt they'll take care of you," he said. But in Central Falls, "they're not going to help me."

Gagnon is among those who would be helped by the last action needed to get Central Falls out of bankruptcy: passage by the General Assembly of $2.6 million in state taxpayer money to supplement the city retirees' smaller pensions for the next five years. Retirees' approval of the bankruptcy plan is contingent on that money, which lawmakers have yet to approve.

Central Falls' descent into bankruptcy has drawn national media scrutiny, with many observers holding it up as an example of what decades of mismanagement can do to a city. The painful cuts forced on its retirees have been cited by Gov. Lincoln Chafee, Treasurer Gina Raimondo and Providence Mayor Angel Taveras in urging other pensioners to accept smaller cuts.

Case is 'enormously significant'

Central Falls' bankruptcy "is a very significant case, and it really is in my view a game-changer," David Skeel, a professor at the University of Pennsylvania Law School, told last month. "Pensions have been treated as sacrosanct, as something that is simply untouchable. ... The idea that you can restructure your pensions is an enormously significant idea."

City Councilman James Diossa, the only elected official in Central Falls who voted against declaring the city insolvent and unilaterally filing for receivership in May 2010, thinks the city is now making real progress.

"Central Falls is emerging from a very painful process that has helped lay the foundation for a stronger future," he told "Now it’s up to the people of Central Falls to increase their engagement and ensure that their local government is held accountable."

It's unclear how long it will take for Central Falls to stop being a ward of the state. A judge ruled April 13 that the Central Falls School District is no longer a part of the city because the state has been funding and administering it since a previous financial crisis in 1991. State taxpayers will spend $40 million on the Central Falls schools this year.

Commission will review charter

Even without paying for its schools, Central Falls' city finances will remain fragile. The bankruptcy restructuring plan includes a five-year plan to maintain a balanced budget, and a financial director who answers to Gallogly - not the mayor - will be put in place to handle its finances throughout that period.

It's possible the state could reduce its level of oversight in post-bankruptcy Central Falls from receivership, the most serious step, to a budget commission, as is now in place in East Providence. That would give Central Falls' elected officials, who've been sidelined since June 2010, power over non-financial issues in the city. The next municipal election is supposed to happen in November 2013.

One major step being taken to prepare the way for the return of democracy in the city is the recent appointment of the Central Falls Charter Review Commission, a nine-member panel tasked with proposing changes to how the city is governed. Voters will decide whether to approve their ideas in a November referendum.

Mike Ritz, whose nonprofit Leadership Rhode Island helped put together the charter commission and has also raised money on the city's behalf by selling "Save Chocolateville" candy bars, said the community should not be defined by its financial turmoil.

'We don't want it to reverse'

"There are a lot of great things that have happened and continue to happen in this city," Ritz told "One only needs to visit Central Falls, to walk their streets, eat in their restaurants, and talk to locals, to appreciate the pride Central Falls residents have for their community."

There are other positive developments in Central Falls. Just this week The Learning Community, a closely watched charter school there, announced that it's received a $1.8 million grant from the W.K. Kellogg Foundation and the Rhode Island Foundation to expand its reach. A Kellogg Foundation official called the school "a remarkable example of innovation and effectiveness."

Still, less than a year after filing for bankruptcy, it's clear the city has a long way to go.

Gallogly said the state will keep a close eye on Central Falls even as it reverts back to normalcy, in order to prevent the same problems that pushed it into bankruptcy from cropping up again. "We have a lot invested in this restructuring," she said. "We don't want it to reverse itself. We need to be sure that nothing unravels."

Ted Nesi ( ) covers politics and the economy for and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi

Copyright 2014 WPRI 12. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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Rhode Island (change)

Gov. Lincoln Chafee, the first independent in his position, has his work cut out for him: fix the state's finances and help 66,000 unemployed Rhode Islanders get back to work.
Offices & Officials

Governor: Lincoln Chafee
Lieutenant Governor: Elizabeth Roberts
Attorney General: Peter Kilmartin
State Treasurer: Gina Raimondo
Secretary of State: Ralph Mollis

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