Governor Lincoln D. Chafee today announced the U.S. Bankruptcy Court for the District of Rhode Island's decision to grant a motion to approve a Settlement Agreement between the city and Central Falls retirees, filed by the Receiver, and argued by the Receiver's attorney, Theodore Orson. The motion was supported by retirees' counsel.
"This is an enormous milestone for the State of Rhode Island and for the City of Central Falls, and all parties involved should be commended for coming together to develop solutions that address the reality of the city's finances. I particularly want to acknowledge Director of Revenue Rosemary Booth Gallogly and her team for their hard work. The approved agreement will save the taxpayers the considerable cost of a protracted bankruptcy and will save the city millions of dollars in operating expenses," Governor Chafee said.
The Central Falls Bankruptcy has been viewed as a precedent-setting municipal bankruptcy and has received extremely positive national attention.
"There is cause for relief today, but not celebration. While the negotiations with retirees resulted in a resolution, the retirees will unfortunately suffer significant and permanent reductions in previously promised pensions. We must work together to address the unfunded liabilities of locally administered pension plans to ensure that this does not happen again," Governor Chafee continued.
The agreement will be a key element in the city's plan of debt adjustment, a five year plan that will create savings necessary for the city to have sustainable balanced budgets for a period of five years. The agreement should shorten the length of the bankruptcy case and save taxpayers hundreds of thousands of dollars in litigation costs. The agreement, which was signed by 122 of the city's 133 retirees, will result in a reduction of over $20 million in future pension payments due to the retirees. As a result of the pension restructuring for retirees and active police and fire employees, the city will save over $1 million per year in annual payments to fund pensions, and will reduce its current unfunded pension liability from $46.6 million to $23.9 million, a 49% reduction.
Judge Bailey, in approving the motions, stated that the agreement will place the city on "substantially better footing" and will "advance the goal of a confirmation of a plan." Judge Bailey found that the Receiver had "properly exercised his sound discretion" and had developed a plan that is "in the best interest of the debtor" and "rather remarkable."
As part of the settlement agreement, the Chafee Administration has agreed to advocate for a one-time lump sum appropriation from the General Assembly of $2.6 million to fund "transition payments" for a period of five years. These "transition payments" will allow retirees a reasonable period of time to make changes to transition into their reduced pension payments. During the five-year transition period, retirees would receive combined pension payments and transition payments which will result in reductions of up to 25% of the amount of pension payments that they were receiving pre-bankruptcy pensions. At the end of the five-year transition period, the transition payments will end, and retirees will only be entitled to their pension payments which will result in reductions of up 55% of the amount of pension payments that retirees were receiving pre-bankruptcy pensions.
The agreement also provides that the Chafee Administration will advocate that the Central Falls locally administered pension plan be moved into the MERS plan, to provide for enhanced pension security.
At today's hearing, the bankruptcy court also approved agreements with the firefighters' union, the police union, and the city workers represented by AFSCME Council 94.
A copy of the city's brief is attached, and additional factors favoring the agreement can be found on pages 8-11.