Central Falls Gives Ballots to Police and Firefighters Asking for 50% Pension Reductions or Risk Losing Everything in Bankruptcy Court

In a scene that is going to play out in scores of cities across the nation, unions are going to come to grips with the fact that pensions are not sacrosanct. Please consider Rhode Island city asks retirees to cut their pensions

As cities across the United States struggle to keep their finances afloat, Central Falls, Rhode Island, is taking a novel approach to try to avoid bankruptcy.

The city is asking police and firefighter retirees to give up 50% of their pension.

On Tuesday, a state-appointed receiver, Judge Robert Flanders, met with constituents to discuss options that will prevent the city from filing for bankruptcy, but the choices seemed limited: either volunteer for the pension cut, or risk losing it all.

Each of the 141 city retirees will receive a voting ballot and a packet by the end of the week, showing how much of their pensions will be slashed if they agree to volunteer for the benefits cut.

With August set as the deadline for further decisions on the financial future of the city, Flanders hopes to find out residents' decisions by the end of the month.

Though the measures seem drastic, residents are being told that it's a far better choice than "being at the mercy of the bankruptcy court."

"It was a very difficult meeting, there was a lot of concern and anger," said Trainor of Tuesday's event.

Flanders "hopes, in the case of the retirees, that they would agree," Trainor said.

"Better to accept his proposal than taking a chance with the bankruptcy court," he added.

Simple Rule

What cannot be paid won't. Taxpayers have had enough. Central Falls is a small and troubled city, but this same scene is going to eventually hit Pittsburgh, Oakland, Houston, Detroit, San Francisco, Los Angeles, Chicago, and most likely every major city in the country.

Benefits are untenable. The sooner something is done, the better off everyone will be.

Things That Must Change

1. Defined benefit pension plans for government workers must end
2. Davis-Bacon and prevailing wage laws that drive up costs of Federal projects and clobber city and municipal governments must come to an end
3. National right-to-work laws must be enacted
4. Collective bargaining of public unions must end
   
5. Existing pension benefits must be renegotiated

Unions will not like any of those but they are all going to happen.

I am disappointed that Rand Paul and others in the Senate did not take up points 2 through 4 in the budget negotiations. Small tax hikes in return for those items would have been well worth it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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