Riley: CF Bailout: Largest Theft of Taxpayer Money in RI History?

Riley: CF Bailout: Largest Theft of Taxpayer Money in RI History?

Rhode Island lawmakers just redistributed $4.8 million from the State to public employees and retirees for the city of Central Falls. At least that’s what I thought I read. There wasn’t much comment or discussion, most likely because it occurred in the middle of the night. But it wasn’t a dream. It was very real.  So given the other real events that have happened recently, including Governor Chafee’s previous forensic investigation lies, Revenue Director Gallogly defrauding the Voters in West Warwick, Rhode Island, Nicholas Mattiello providing 12 more months of cover to 38 Studios criminal behavior, and Chafee approvals for all this, it seems almost logical  that the Assembly just took cash from the state taxpayers and handed it to Central Falls public employees. But why?

It wasn’t even the first time they did it: In 2012 they did a similar thing and no one blinked. R.I. budget: Bankrupt Central Falls gets $2.6 million to help police and firefighter retirees (Source: Providence Journal 06/08/2012)

Last week, the Rhode Island House Finance Committee did it again, this time committing to $4.872 million in payments to Central Falls public employees and retirees between July 2016 and July1, 2044. The new line in the sand or precedent now established by the state house is that even in receivership or bankruptcy, public employees cannot be impaired beyond 75% of their previous base pension benefit.

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“The reworked bills introduced by Central Falls Democrats Elizabeth Crowley in the Senate and Agostinho Silva in the House would commit the state to paying $4,872,378 million between July 1, 2016 and July 1, 2044” projo june 20,2014

The bill says: “It is fair and just that the state appropriate sufficient funds to the city to supplement the city’s funding of the pension benefits to the Central Falls retirees to ensure that the [retirees] continue to receive seventy-five percent (75%) of the base pension benefit, after taking into account all applicable cost-of-living adjustments, for their lifetime and to the extent applicable, for the life of their beneficiaries.”

If such impairment below 75% should occur, public employees are now entitled to State Taxpayer dollars to make up the difference. This extraordinarily impactful precedent was forwarded in overtime at the middle of the night. This could be the largest theft of taxpayer dollars in Rhode Island History. Imagine Exeter taxpayers are now obligated to pay for Providence and Johnston’s potential receiverships. Will current and future Jamestown taxpayers pay for West Warwick’s default and mismanagement?  Or will South Kingston taxpayers and their volunteer fire department workers pay for Central Coventry and their failed CCFD if they fall into receivership?

The potential bill to taxpayers of perfectly sound communities through this redistribution is in the billions. Johnston can now get rid of $300,000,000 in liabilities through receivership and have state taxpayers subsidize their firemen who receive over $ 100,000 for life plus colas. The state taxpayers would now guarantee not only their own town workers but up to 75% of other town workers as well. Two Democrats in Central Falls wrote the bill. The House has passed it and Chafee signed it.

If another 2008 type market crisis should develop, no town will be immune and the entire state will be liable for the worst of our cities’ profligacies. What incentive will there be to correct your own city’s finances? Now they know the State is there to bail them out with State Taxpayer dollars. This precedent is frightening and I am surprised the assembly didn’t think to speak to Moody’s first, as they pretended to do in 38 Studios debt. This will be a much larger dollar amount. Supposedly the new mantra is to be concerned about credit ratings and the long term cost of debt. Has the governor produced a study on what this Central Falls precedent will cost? No, yet he signed it happily. I doubt he or the assembly ever will produce such a study, thus putting even more emphasis on the charade played recently by Chafee, Mattiello et al on all Rhode Island voters. The 38 studios agreement looks even more like cover up. They said “we were concerned with credit ratings and the long term cost of debt.” Yeah right.

So let’s now  hear from the cast of characters URI professor Lardaro, greater Providence Chamber, RIPEC , the CPA’s, Rhode Island Builders Association and the Hospitality Association on how this Central falls decision is good for business and how it helps our cost of debt for  Rhode Island to bail out Central Falls? They are probably dormant till next legislative session when Mattiello or Fox or Murphy hands them their next talking points. These organizations need to wake up and realize that there is no “money tree”.

Shifting taxpayer dollars to bailout bad EDC decisions, bad town management and corrupt behavior are all the same thing. Pushing bailouts on to taxpayers is not moral in any sense. We didn’t vote for huge pensions in Johnston or Providence or Central Falls. We didn’t vote for corruption at the EDC or at the General Assembly or the Central Coventry Fire District. Yet in case after case money is being extracted from state and local taxpayers without their consent or control.

Doesn’t anyone else have a problem with the precedent here? Do you folks in Hopkinton want to subsidize Providences $ 3 billion in Pension and OPEB liability?

Pitch forks and torches.

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC news, Yahoo TV, and CNBC.