(Updated, 3:05 p.m.)
CENTRAL FALLS – A Superior Court judge has appointed a Pawtucket attorney as the city’s temporary receiver after its leaders voted Tuesday night to declare the city insolvent.
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R.I. Superior Court Justice Michael A. Silverstein put Central Falls into receivership at a hearing on Wednesday and named Jonathan N. Savage, a partner at Shechtman Halperin Savage LLP in Pawtucket, the city’s temporary receiver.
Putting the city into receivership is “in the best interest of [Central Falls’] taxpayers, employees, creditors, vendors and pensioners,” Silverstein wrote in his order. A permanent receiver will be appointed by June 8.
Central Falls Mayor Charles D. Moreau and the city council filed for receivership earlier in the day, citing falling tax revenue, a reduction in state aid and “collective bargaining agreements and pension obligations [the city] cannot afford” as reasons for its fiscal crisis.
The decision comes just days after Central Falls Superintendent Fran Gallo and the city’s teachers union reached an agreement to end the high-profile dispute that had seen Gallo move to fire the high school’s entire teaching staff.
Central Falls has an annual operating budget of about $18 million, roughly $7.6 million of which covers personnel costs, according to court documents. Most of those employees are unionized. (The city’s school district has been paid for by state taxpayers since 1991, except for building maintenance.)
The city’s deficit for the fiscal year that ends June 30 is estimated at more than $3 million, or nearly 17 percent of its total budget. The shortfall for next year is forecast to be more than $5 million, or 28 percent of the total.
City officials said they were forced to act because they need to balance the municipal budget before sending tax bills in June. Councilman James Diossa was the only member of the five-person council to vote against filing for receivership.
Attorneys said the city has just $4 million in assets on hand to cover more than $35 million in pension benefits it has promised municipal employees. Actuaries said the city should set aside $2.7 million this fiscal year to cover pension obligations, but no contribution was made due to a lack of funds.
The city would need to take about $1.5 million from the pension fund – or 38 percent of its remaining assets – to cover pension payments in full this fiscal year, the documents said.
The city also owes more than $10 million on outstanding municipal bonds.
For Savage, this is not the first time he has taken the reins of a financially stressed organization.
Savage is the court-appointed receiver for Landmark Medical Center, the financially troubled Woonsocket hospital, and he has served in the same role for companies including Nestor Traffic Systems Inc. of Providence and American Biophysics Corp. of North Kingstown.
The city was represented in court by its solicitor, Jack Gannon, and special counsel Joe Larisa. The three attorneys have scheduled a press conference for Wednesday afternoon at Savage’s law office in Pawtucket to discuss Central Falls’ situation.
Central Falls has long suffered from being one of Rhode Island’s poorest cities, as well as one of its smallest, at 1.27 square miles. The city’s population reached a high of 25,989 in 1930, but by 2000 the number of residents had shrunk to 18,928.
The last time Central Falls faced a major financial crisis, in the early 1990s, there was talk of dissolving the city. Instead, the General Assembly established the Central Falls Review Commission, which made recommendations and oversaw the city’s finances until 2000, and gave the R.I. Department of Education control of the city’s schools from 1991 until 2003.
