The Desperate Price of Fiscal Unaccountability

October 14, 2015

Municipal 9-1-1. As U.S. District Court Judge Bernard Friedman noted late last month, the importance of Chapter 9 municipal bankruptcy is to ensure “the resources to provide [its] residents with basic police, fire, and emergency medical services that its residents need for their basic health and safety.” It is that very apprehension about such essential, lifesaving services that has been at the heart of the municipal bankruptcy turmoil of Rhode Island’s Coventry Fire District—one of four fire districts in a municipality of 36,000 people—and where each district has its own governing authority—and where, currently, a private ambulance company had been negotiating with local officials to provide “temporary/emergency” coverage in the Coventry Fire District during its fiscal crisis—but has backed out after several of its employees threatened to resign. Kent County Superior Court Judge Brian P. Stern presided last week as the district remains essentially paralyzed—its bank account is frozen; its firefighters have not been paid for about 45 days; and Fire Board Chairman Frank Palin had contacted a private fire service, Coastline, in the event the court orders the board to hire a private ambulance company. Judge Stern has issued a stern [yes, a pun] warning that the Coventry Fire District is approaching a public safety crisis and residents could be without fire protection in the imminent future. The judge issued an order that state emergency and revenue officials be notified that fire and rescue protection might end soon.

Indeed, the district has been in crisis mode for years: In May 2013, Judge Stern had ordered the Central district liquidated after the board and the union representing firefighters failed to reach a contract agreement, directing the board to sell off property and lay off employees to pay off its debts. The board sold off equipment, shrunk staff, and closed three of five fire stations; however, before the job was completed, former Rhode Island Gov. Lincoln Chafee stepped in and appointed the first of two receivers in May of 2014 to reorganize the department, and, if deemed necessary, to take the fire district into chapter 9 municipal bankruptcy—as former Rhode Island Supreme Court Judge Robert Flanders had done after his appointment as a state Receiver with Central Falls or Chocolateville in August, 2011. Ergo, by the New Year, the Governor had named a receiver, Mark Pfeiffer, appointed by Governor Gina Raimondo, directing a municipal bankruptcy reorganization through the state Department of Revenue.

The duration, however, was short-lived: last month, Mr. Pfeiffer and state revenue officials announced they were giving up trying to reorganize in the face of fierce opposition to his proposed plans of seeking chapter 9 bankruptcy for the fire district—fiery opposition from both the town’s elected leaders and fire district’s leaders. That adamant opposition appeared to be inflamed by Mr. Pfeiffer’s proposed five-year plan of debt adjustment’s inclusion of major contract concessions from the firefighters’ union; but also its proposal of tax increases.

Thus, U.S. U.S. Bankruptcy Court Judge Diane Finkle has granted the state’s request to withdraw the Central Coventry Fire District from chapter 9 municipal bankruptcy, effectively restoring control of the district back to the district’s fire board, noting: “Face it, the taxpayers want a different model,” adding it was time for the courts to get out of the way and the parties to resolve their issues through a “political or legislative” process. Judge Finkle’s decision puts control of the fire district back into the hands of its board, some of whom have made no secret that they want more affordable fire protection and rescue services, possibly even using volunteers and private ambulance service. But how to get there is uncertain: the District’s board of directors has just a week left in which to come up with a plan and put it before district voters at an annual budget meeting on Oct. 19th: the board will have to decide if it wants to return to the idea of liquidating the district — as voters in the neighboring Coventry Fire District did recently — or negotiate another contract with local firefighters.

Ergo, with an accumulating debt to Coventry Credit Union of about $465,000, and an accrued deficit of more than $600,000, the fire district is in a fiscal Twilight Zone amid a broader governance question with regard to whether the current system of fire districts ought to be replaced by town-wide fire departments and the elimination of fire districts. Yet, to date, the Coventry Town Council has proved unwilling to become involved in the fire district’s seeming insolvency—notwithstanding its ultimate responsibility for public safety or the town’s citizen, non-binding referendum last June to liquidate the fire district. Indeed, the town’s inaction appeared to provoke, last July, a letter from the Rhode Island Department of Revenue to warn Coventry’s elected leaders, in which the acting Director wrote: “[T]he Department of Revenue is operating under the premise that the Town of Coventry will assume responsibility for the safety and well-being of its residents…We fully expect the town to be taking the necessary steps to ensure that it will be able to provide fire protection services to the area covered by the Coventry Fire District in the event the district suspends its operations.” Noting the state was ready to help under Rhode Island’s Fiscal Stability Act, which makes it clear that “any and all costs incurred pursuant to the state’s involvement under the Fiscal Stability Act become obligations that must be paid by the locality.” In fact, that appears to be part of the hot potato problem: were the town’s fire district to dissolve, the town’s taxpayers would be forced to finance their services.

In this uncertain municipal governance and fiscally distressed environment, the fire district board has one week in which to complete and present a plan to voters about how fire and rescue services will be financed and provided to residents of the district.

In a state half the size of many counties, the multiplicity of governing districts and municipalities raises grave questions of not just fiscal accountability, but also the seemingly intractable nature of the fire district’s own charter—a charter which provides that only fire district voters have the authority to determine whether and how to tax district residents – a power apparently greater than even a state-appointed receiver’s, despite legislation passed last year to clear the way. Indeed, it was just that charter provision which imposed such a wrinkle in Rhode Island’s efforts to step in: U.S. Bankruptcy Court Judge Diane Finkle last July, during a municipal bankruptcy status conference, warned that portions of the state’s proposed five-year plan of debt adjustment would likely need voter approval—especially for the last four years of the plan wherein the plan called for tax increases once the state receiver had stepped aside and decision-making powers reverted to the fire district’s board—one of four in a town of about 35,000—and one where the Coventry Town Council has repeatedly refused to extend any further fiscal assistance to the district which already is in debt to the town for $300,000.

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