State receivership ends in Central Falls

Rhode Island on Monday officially returned control of the financially troubled city of Central Falls to local elected officials, who must now guide the municipality through a recovery plan crafted under state oversight and approved by a federal bankruptcy judge.

State Revenue Director Rosemary Booth Gallogly formally dissolved the receivership in a letter delivered to Central Falls Mayor James Diossa.

"I've been waiting to hear that for two years," said City Council President William Benson Jr., who unsuccessfully challenged the constitutionality of the receivership law and has repeatedly sparred with the receiver. "Them gone is a good thing."

A state-appointed receiver took over in 2010 to address shaky finances in Rhode Island's smallest city, including a massive budget deficit and an unfunded pension liability officials said was $80 million. In 2011, the city, which also had faced a sharp cut in state aid, became the first in Rhode Island to declare municipal bankruptcy. Retirees' pensions were cut, some by more than 50 percent; taxes went up; city workers were laid off; and union contracts were renegotiated.

The bankruptcy officially ended last fall when a federal judge signed off on the receiver's five-year fiscal recovery plan. A newly hired finance officer will oversee the city's budget and make sure it follows the plan as closely as possible. Any increases in spending must be offset by more revenue or less spending elsewhere.

"We're obviously glad that we're in a position to return authority back to the elected officials (now) that the city is on a path towards fiscal stability with five years of balanced budgets," said Theodore Orson, a lawyer for the receiver. He said the state recognizes the sacrifices many in the city made during the bankruptcy, particularly retirees.

Most of Central Falls' 19,000 residents will likely notice no change in their day-to-day lives with the receiver gone, though city control is being handed back to a different mayor. Charles Moreau stepped down in September and pleaded guilty to a federal corruption charge; he is serving a two-year prison sentence. Diossa, a former city councilman, was sworn in in January, though not with full authority.

Diossa couldn't be reached for comment on the end of the receivership. He has said he supports the financial plan but hopes to find additional revenue that could be used to offset the tax increases.

He and Benson have both criticized the cost of the receivership - which must be repaid to the state. Gallogly, the revenue director, said the reimbursement will be for about $3.2 million. The city already paid hundreds of thousands of dollars more from its own budget for the receiver's staff.

"I do not see where we're going to have the money to pay that back," Benson said.

Benson also questioned the feasibility of the budget plan.

The end of state control was initially envisioned for Dec. 31 of last year but got delayed because of an ongoing dispute between receiver John F. McJennett III and some members of the council, including Benson. The state insisted they attend workshops on the recovery plan; the councilors said they were not required to, and accused the state of dragging its feet on relinquishing control.

Mario Bueno, executive director of Progreso Latino, a social services agency in Central Falls, called the end of the receivership a turning point.

"It is a milestone," he said. "We're look forward to seeing progress going forward. We're hopeful that that current administration will be mindful of our finances and the city will learn from our history."