Central Falls, Rhode Island will have to default on its pension promises. They threw in the towel in their May, 2010 Petition for Receivership claiming:
8. Because of its dire fiscal situation, the City has sold off much of its chief pension fund assets to satisfy annual pension obligations. Its actuarial accrued liability exceeds $35 million dollars and its assets are approximately $4 million. The City audit reports that for fiscal year 2009, its “required” contribution was over $2.7 million and the City’s actual contribution was $0. For fiscal year 2010, there are no funds available to contribute and over $1.5 million in assets would have to be sold to meet present obligations.
There is also the matter of health insurance which bring the total value of benefit promises made to 214 police officers and firefighters up to $80 million. How will Central Falls deal with this?
The New York Times reports that Robert G. Flanders, the state-appointed receiver, who recently closed the public library and a community center to save money has a plan. He has no power to cancel the city’s contracts with workers, so instead he has begun approaching retired police officers and firefighters with what he describes as “the Big Ask”: will they voluntarily accept smaller benefits in the name of saving Central Falls?
That “Big Ask” will be popped next week at a meeting with the retirees at 10:00 a.m. in the auditorium of Central Falls High School by which time the pension trust assets would have been about exhausted.
In poker a ‘tell’ is a clue that a player gives about the strength of their hand. Central Falls is a ‘tell’ to anyone who believes that governments are funding their retirement benefit promises adequately. They’re not and you may not find out that cold hard fact until assets are depleted and you get ‘asked’ to take less…….or ‘told’ to take nothing.
Posted by Phil Sloan on July 12, 2011 at 6:56 pm
How far is NJ from this position?
Posted by NFS on July 12, 2011 at 7:21 pm
In Linden, we had a high amount of police and firefighters retiring this year. I forget the exact count and the year is only half over. From what I have gathered, municipalities receive the bills from the State for retirees 3 years after retirement. We then have the new employees to pay in addition to the retiree bills. Couple that with the “deferred” pension payments that have to be made up along with interest. The pension portion of Linden’s budget almost doubled from 2010 to 2011. Next year has got to be near a crisis situation.
I wonder if we can live in the County parks instead of just vacationing there?
Posted by burypensions on July 12, 2011 at 7:29 pm
It might not be so bad. 2012 contributions are already known:
http://www.state.nj.us/treasury/pensions/epbam/finance/pfrsapprop.htm
The valuation report for 6/30/10 determines the 2012 contribution.
Linden will go from $6,224,237 in 2011 to $6,682,290 in 2012 for Total Pension (7.4% increase) though if they deferred 1/2 of their pension payment in 2009 (like Union County did) they’ll have to start making that up in 2012.
Posted by Tough Love on July 12, 2011 at 8:50 pm
John,
I scanned through a bit of the information on the linked website. As outlined elsewhere, the new law makes the annual contribution requirement a “contractual” right of Plan participants (with a right to sue and collect reasonable attorney’s fee if the contributions are not made in full and on schedule).
So what happens if the economy meanders along for a LONG time and that 1/7, 2/7, … grade-in to full funding over 6 more years become untenable (based on the service cuts or tax increases that would be necessary) ?
It’s not clear what the “enforcement mechanism” would be if Christie or a new Gov. just says “sorry” we just don’t have the money.
Your thoughts ?
Posted by burypensions on July 12, 2011 at 9:01 pm
Or if they change that 1/7th to 1/10th, or whatever they need it to be.
You’re dealing with people who make the law that judges (approved by those same people) uphold. That clause is useless.
Posted by muni-man on July 15, 2011 at 2:07 pm
Tough Love, you might like this (top right para. on pg. 2 might be especially appealing to you). Bottom line is this lawyer says pensions aren’t bulletproof
by any means under the Contracts Clause of the US Constitution and can be adjusted downward if it serves a legitimate public purpose. As with the current
debt ceiling debate circus, economics will eventually dictate matters and the law will mysteriously accommodate the changes that will be necessary to get things back into balance. Interestingly, he’s also a member of the NY State Bar so I’m sure he’s well versed in their supposedly ironclad state constitutional pension guarantees over there.
http://www.kansaspolicy.org/researchcenters/budgetandspending/budgetandspendingstudies/d75658.aspx?type=view
Posted by NFS on July 12, 2011 at 8:44 pm
O.k. maybe not crisis next year … but in a couple of years from now when the bills for recent retirees start to roll in, I think we are going to being looking at major tax increases. We also have two major stalled/failed UCIA projects that we are making bond payments on with nothing to show for it except blocks of empty lots and DeCotiis legal bills. I can’t see how we can ever recover from that since the redevelopment properties were bought before the real estate decline, but that’s another story.
Thanks for the treasury link.
Posted by burypensions on July 12, 2011 at 8:59 pm
It may be another story but it’s important and I’d be interested in knowing what those two projects are. I’ve updated DeCottiss UCIA billing since 2004 and
it comes to $7.8 million::
http://burypensions.files.wordpress.com/2011/07/uciadecotiis.xls
They’re still getting paid for Linden Library when that’s been built (without walkways to a side entrance and the book depository) and open for over a year (with the new DVDs they bought last year still having ‘new’ stickers, otherwise there’d be about 10 DVDs in the ‘new’ collection. The few thousand they’re paying to DeCotiis monthly could be going to buy new material.
This is NJ politics. Decotiis buys off politicians and they get repaid because the empty suits they put into office don’t have a clue how to run a business, much less a government.
So there’s no money to fund the pensions but an ill-thought-out Renewable Energy project goes ahead because it means $500,000 for DeCotiis (so far). If the unions would wake up to that they might be of service..
Posted by NFS on July 12, 2011 at 10:31 pm
The project names are Morning Star and South Wood Avenue. I copied the following from the Mayor of Linden’s personal website to give you a brief synopsis.
_________________________________________________________________
“South Wood Avenue Redevelopment
In 2003 we agreed with this developer to build approximately 124 to 150 residential units above retail/office space on the 1st floor of a four-story structure. The City has bonded $3 million ($245,000 per year in principal and interest) so that we were able to have the money to buy out the existing property owners on South Wood Avenue between Linden and Morris Avenues. When we negotiate a price for this property from a new developer, Linden will take that money and buy out the existing property owners across the street and then sell that block to the developer. Upon completion of this second phase, the monies from the sale of this property will be rolled over into Phase 3 to purchase the properties on both sides of South Wood Avenue from the railroad bridge to Linden Avenue. When all three phases are completed, we will have a beautiful downtown area on South Wood Avenue for mixed use and geared toward young professionals who use the railroad to commute to New York City, Newark or destinations South.
Unfortunately, we find ourselves in another legal issue. The developer is suing us for failure to perform the environmental clean-up in a timely manner. The courts ruled that Linden could seek a new developer, but refused to throw out his lawsuit. Verge Industries, LLC wants $15 million for lost profits, and is willing to settle for $2 million. City Council decided to defend this lawsuit in court since the majority of Council feels the developer “dragged” his feet in this development mess that has been going on for 7 years now.
Recently our attorney was successful in having the lawsuit thrown out of court on summary judgment. Now it’s up to Verger Industries to appeal or let everyone move forward rather than spending more money on attorneys.
St. Georges Avenue Redevelopment (Phase One is complete)
Phase One of this plan consisted of building Popeye’s Chicken and Advanced Auto Sales on East St. Georges Avenue between Chandler Avenue and Charles Street.
Phase Two, which was unanimously approved by Council in 2003, consists of building 32,000 square feet of retail and office space on two blocks of E. St. Georges Avenue from Charles Street to the railroad tracks.
Linden has bonded $5 million (545,000 per year in interest and principal for 20 years) to raise capital to purchase the properties on the two square block area and we now own all the properties except two. We anticipate demolishing the vacant buildings this fall.
Unfortunately, Morningstar Community Development Corporation, a non-profit church corporation, is having trouble receiving financing for this project. Linden has dealt with this corporation in the past when they successfully built a three-story senior citizen building on property formerly occupied by School #4, but the economic climate of today is extremely tight.”
__________________________________________________________________
Couple of things. The developer selected for the South Wood Avenue project, Verge, was the same developer who went bankrupt building a condominium by the Linden train station only a block from this failed project. Litigation began in 2007. Y-T-D legal fees to DeCotiis are $165,000, not counting whatever bill was paid in April which is not on the UCIA website. I don’t have in my heart right now to look up what the legal fees for years 2007, 2008, 2009 & 2010 were. I can imagine this dragged out litigation has exceeded a half million.
The legal and engineering fees on Morning Star project are just as bad.
Posted by burypensions on July 12, 2011 at 10:47 pm
They were both on the spreadsheet.
Verge Properties came to $579,365 since 2007 with a lot recently and the July bill not up yet.
Mornigstar may go beyond 2004 but DeCotiis billing since 2004 is $425,619.
Posted by NFS on July 12, 2011 at 10:56 pm
Great job with the spreadsheet. I’ll keep in my “favorites”. I may have downloaded it once before if you previously posted it. It’s hard sometimes to keep up with it all. That could be by design.
Posted by NFS on July 12, 2011 at 10:51 pm
Another UCIA calamity was when Linden, in collusion with the UCIA, sought to acquire development rights to property owned by ISP-Dupont. It’s another story for another day. Linden lost years while this attempted land grab was tied up in litigation. It is NEVER ENDING. Linden thinks the County is its friend. Nothing could be further from the truth.
Good night.
Posted by Randy on July 13, 2011 at 1:07 am
John, is it true that anyone in the same pension system as politicians in the NJ State legislature have a good chance of continuing to receive a pension for obvious reasons.
Posted by burypensions on July 13, 2011 at 8:57 am
It’s hard to say since politicians wind up in the pension system even when not in office.
For example, Charlotte DeFilippo is head of the Union County Democratic Party who names the freeholder board. She’s also head of the UCIA so he also OKed the $7.8 million to
DeCotiis, a major campaign donor that then kicks back a little.
Posted by Mr. Surprise!!!! on July 15, 2011 at 4:17 pm
3 RI mayors say retirees must be part of pension solution
http://newsblog.projo.com/2011/07/mayors-say-retirees-must-be-pa.html
“Robert G. Flanders, the state-appointed receiver”, If I understand correctly Flanders is the second receiver. I forgot what happened to Pfeiffer. States looking to replace bankruptcy with something else should consider that replacing the mayor with a receiver had done little.
Posted by muni-man on July 15, 2011 at 4:50 pm
This guy says retirees can be definitely be part of the solution, much to their dismay. The legal fallout’s gonna be very interesting but the public’s are gonna lose ultimately. It’s just a matter of how much benefits are reduced on a case-by-case basis. Every week the drumbeat gets louder and don’t think for a minute that the courts aren’t damn well aware of it.
http://www.kansaspolicy.org/researchcenters/budgetandspending/budgetandspendingstudies/d75658.aspx?type=view