August 1, 2011

Central Falls Bankruptcy Sounds the Alarm for RI

Eileen Norcross

Senior Research Fellow

The bankruptcy filing of Central Fall, RI, sounds the alarm for other municipalities in the state who have large pension and health care obligations on the books.

This is certainly a wakeup call for other struggling towns. I think they will be watching to see how the judge decides. Can towns expect workers to take reduced payments? Or should they be preparing for something similar? It may prompt other towns to take drastic steps towards pension reform—and at the state level as well.

Central Falls’ predicament highlights the fact that pension reform begins with an accurate calculation of the liability and proceeds with a plan for how the bill is to be paid, and how public sector retirement systems are to be made stable.

Because the property tax base in Central Falls is small and it is a lower income area, property taxes are not likely to be sufficient to make payments. They may need to issue a bond to make this payment.