The Wheels Fall Off In Central Falls, Rhode Island–The Pension Explosion Begins
Keep your eyes on this one folks, many more to come. Pension tsunami coming…
Recently, Central Falls, a small and deeply troubled Rhode Island city, about six miles north of Providence with a 14.5% unemployment rate handed over the controls of its finances to a receiver. Appear to be a bit of Greek meltdown in the Ocean State. Same story, different climates. Both Rhode Island and Greece are pristine examples of the overextension of the welfare state. While many citizens work 60 hours a week to make ends meet in the private sector, in the public sector public employees receive lavish pensions from a dying economy. Unsustainable. An inevitable disaster. Woe is us. Tick, tick, tick, California, New Jersey, Illinois–the Chernobyl of pension systems.
The city of about 19,000 people is struggling, with about a third of the population living in poverty. It struggles with massive debts, in particular the interest rate on about $17 million in general obligation bond debt–one of the municipal bond types sure to bring a great deal of heartache in the years ahead.
A key issue in the Central Falls collapse is the city’s pension fund time bomb. With $4 million in assets and $35 million in liabilities, the cradle to grave Cadillac pension benefits is an unsustainable proposition. Another canary in the coal mine. Restructuring unilateral contracts, restructuring debts and cutting rich pension benefits have to happen.