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Rhode Island's Central Falls reeling from underfunded pension

The small city north of Providence is widely held up as a national worse-case scenario of the drastic benefit cuts public workers can face. Detroit, take heed.

August 03, 2013|By Richard Simon
  • Retired Central Falls firefighter Paul St. George saw his annual pension slashed from $36,000 to $24,000. "They sold us down the river," he says.
Retired Central Falls firefighter Paul St. George saw his annual pension… (Richard Simon, Los Angeles…)

CENTRAL FALLS, R.I. — Paul St. George worked 19 years as a firefighter, sometimes running into burning buildings for rescues. Once, he was injured when a wall fell on him. For his service, he counted on a promised $36,000-a-year pension.

But in August 2011, this small city — with an $80-million unfunded pension, and retiree health benefit liability five times annual revenues — filed for bankruptcy.

St. George's pension was slashed to $24,000. Pensions for other retired city workers also were drastically cut, even after retired firefighters and police officers pleaded, saying they had risked their lives for the city. A 75-year-old retired police lieutenant pointed to his right hip where bullet fragments remain years after he was shot during a robbery attempt.

"They sold us down the river," said St. George, 56. "We worked hard in this city over the years, but at least we had our pension to look forward to.... We deserve better." With his pension cut, health insurance costs up and city property taxes increased, St. George had to move out of his home of 25 years into an apartment and take a full-time job as a maintenance man.

Just north of Providence, this one-square-mile former mill town of 19,000 would seem to have little in common with Detroit, the biggest U.S. city to ever declare bankruptcy. But Central Falls is widely held up as a national worse-case scenario when it comes to the drastic benefit cuts public employees could face because of unfunded pension liabilities.

"You don't want to end up like those poor people in Central Falls," goes the mantra among city officials around the country seeking to pressure unions into concessions, said Bruce Ogni, president of the Central Falls Police Retirees Assn.

"There's no doubt about it. We were used as a lab rat" for pension reform, St. George said.

Nationally, local and state government pension funds are underfunded by an estimated $1 trillion, according to the Center for Retirement Research at Boston College. In Detroit, the most heated issue is the potential pension cuts for 30,000 current and retired workers as the city grapples with an $18-billion debt, including an estimated $3.5-billion unfunded pension liability.

Central Falls stands out because it "broke the taboo against restructuring pensions," said David Skeel, a law professor at the University of Pennsylvania. "Before Central Falls, many people thought it was both legally and politically impossible to restructure pensions in Chapter 9" bankruptcy.

Pensions were initially cut by as much as 55% for the 133 Central Falls retirees. But the state stepped in to soften the blow, reducing the cut to up to 25% for the first five years.

Some retirees were forced to go back to work in other professions — and simmer with a sense of betrayal.

"I feel like I was robbed," said Joe Laurie, 62, who retired after 35 years with the Fire Department. He and his wife are "prisoners in [their] own house" because of his reduced income, Laurie said.

Ogni, 50, a retired police captain who is raising twin 9-year-old boys with a wife fighting breast cancer, says he struggles to live on his reduced pension and is trying to pick up work as a background investigator.

But he is worried about retirees in their 70s and 80s who "can't bounce back," including an 89-year-old police retiree who was a World War II prisoner of war.

Aside from the pensions, there was other civic pain. Property taxes were increased. The city workforce was cut by nearly a third. Current employees and new hires must contribute more to their pension and pay more for health insurance. And city officials now must attest, under penalty of perjury, that they aren't spending beyond the city's means.

Like Detroit, Central Falls has suffered from factory closings, a shrinking tax base, high unemployment and unfunded pension and retiree health benefits. Central Falls, with a large number of low-income residents, also was mismanaged for years — its former mayor was sentenced to prison earlier this year on a corruption charge.

Robert Flanders, the city's former state-appointed receiver, said the "pensions were way too generous" for a poor community. City workers were retiring after 20 or 25 years "in the middle of their working life" and taking other jobs while receiving their city pensions, he said.

But retired firefighters said their pensions were designed to help make up for being among the state's lowest-paid firefighters.

"We were told, 'We don't have a lot of money to pay you, but you'll be taken care of when you retire,'" St. George said.

Retirees said they agreed to the drastic pension cuts because they feared they could end up with nothing. They said they also could not afford a lengthy court fight over the issue, especially given the broad powers of a bankruptcy judge. They recall Flanders telling them that "a haircut is better than a beheading."

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