Central Coventry Fire District files for bankruptcy

Chafee: District's cost 'has risen beyond the willingness of the taxpayers to pay'

COVENTRY, R.I. (WPRI) – The long-struggling Central Coventry Fire District filed for bankruptcy late Tuesday after local firefighters and the Chafee administration failed to reach an agreement to fix its finances despite months of negotiations.

It marks only the second time a local government has filed for bankruptcy in Rhode Island. The tiny city of Central Falls filed for bankruptcy in 2011 and is now generally seen to be on the mend after its debts were restructured in federal court.

“This is an unfortunate step,” Gov. Lincoln Chafee said in a statement. “Short of an agreement with the Firefighters Union and restructuring the district’s other debts, bankruptcy is the only tool left to us to finally set the fiscal ship of the Central Coventry Fire District on the right course.”

The fire district’s personnel costs are projected to be $6.4 million in the current fiscal year, while its total revenue is forecast to be only $5.8 million, according to the bankruptcy filing. The fiscal year ends June 30.

“The cost of the fire district has risen beyond the willingness of the taxpayers to pay, and now bankruptcy is the only means available to restructure the district’s operations and obligations to restore it to fiscal solvency and stability for the future,” Chafee said. The governor added that he wants the bankruptcy process to move quickly and finish with a five- to six-year budget plan.

David Gorman, president of the IAFF Local 3372 firefighters union in Coventry, said he was disappointed Chafee administration officials chose to file for bankruptcy so close to Christmas. “Bankruptcy is not exactly in the Christmas spirit,” he said in a statement.

Gorman argued filing for bankruptcy “will jeopardize public safety even further. We’re down to just 31 firefighters from 52, and to two stations from five. And taxpayers will pay hundreds of thousands of dollars in unnecessary legal costs, just like they did in Central Falls.”

Gorman suggested the union will argue the governor’s team has failed to negotiate enough to be eligible for bankruptcy.

Created in 1959, the Central Coventry Fire District is one of four independent fire districts in the spacious town of about 35,000 residents. Another one of its fire districts – the Coventry Fire District, formerly the Anthony Fire District – has been in the news in recent weeks since a Target 12 investigation raised questions about the conduct of its fire chief.

The reasons for the bankruptcy filing were outlined in hundreds of pages of documents filed with the U.S. Bankruptcy Court after 5 p.m. Tuesday – just hours before Christmas Eve.

Central Coventry Fire owes more than $4.4 million to its 20 largest unsecured creditors, according to a review of bankruptcy court filings by WPRI.com. That includes $983,020 to the union for employee compensation; $926,337 to Centerville Savings Bank for a line of credit; $741,677 to the R.I. Emergency Management Agency; $628,739 to the state pension system; and $300,000 to the Town of Coventry for a loan.

“Unfortunately, the district’s financial difficulties are simply too severe to remedy through the limited powers of a state receivership,” lawyers for the Chafee administration argued in the filing. “Stated simply, the District is insolvent.” They wrote that the fire district’s board continued to hire new workers and lease new equipment even after learning that its budget projections were incorrect, and said taxpayers “faced oppressive future liabilities” under its current union contract.

The bankruptcy filing said Central Coventry has a total of between 50 and 99 creditors, and estimated both its assets and its liabilities at between $1 million and $10 million.

“The District’s financial situation is no better today than it was more than two years ago,” lawyers wrote in the filing. They said the fire district’s structural deficit “is so large that even a 50% increase in taxes would not generate enough to revenue to solve the District’s financial problems.”

Chafee said his goal is for the district “to emerge from the bankruptcy with a reorganized and downsized operation that can pay back its debts and maintain a proper fire and rescue service, as well as assure tax stabilization for the residents.”

Central Coventry Fire’s financial woes have become a long-running saga at this point.

The fire district was placed under court-appointed receivership in October 2012 due to a growing gap between its assets and liabilities. Last February, after more than a year of unsuccessful efforts to balance the fire district’s budget, R.I. Superior Court Judge Brian Stern ordered it to be liquidated. Before that could happen, however, state lawmakers voted to amend the state’s Fiscal Stability Act to cover fire districts.

That allowed Chafee to step in and appoint Steven Hartford, the former town manager of Westerly, as Central Coventry’s new receiver in May. Last month, as it became clear a resolution was unlikely, Hartford hired former R.I. Supreme Court Justice Robert Flanders, who oversaw Central Falls’ bankruptcy, to handle the fire district’s insolvency case. In the meantime, fire houses have been closed and some equipment has been sold.

“It’s disappointing for the governor,” Hartford said Tuesday night. “I think Governor Chafee is really a municipal leader at heart. He comes from a municipal background. And he really believes in balancing the equities between workers’ rights and taxpayers’ rights. We just couldn’t find a solution through negotiation.”

“It’s not about what we want to have as an operation, or what we need as an operation,” Hartford added. “It’s about what we can afford to provide to the district. And that, in the end, is going to have to win out over those other interests.”

Central Coventry Fire’s expenses totaled $5.9 million in the 2013-14 fiscal year that ended June 30, which was roughly $100,000 over budget and “did not include payment for the district’s outstanding liabilities,” according to an Oct. 20 presentation by Hartford and Rosemary Booth Gallogly, director of the R.I. Department of Revenue.

The Superior Court liquidation order put the fire district’s claims at $9.7 million; if the district isn’t liquidated, claims would total an estimated $3.3 million, according to the presentation by Hartford and Gallogly.

Rhode Island has 44 fire districts spread across 15 of the state’s 39 cities and towns, according to a study last year by the business-backed Rhode Island Public Expenditure Council think tank. Their financial situations are often opaque due to relatively lax requirements for reporting and auditing.

Here is Governor Chafee’s full statement on the Central Coventry Fire bankruptcy filing:

“This is an unfortunate step. Short of an agreement with the Firefighters Union and restructuring the district’s other debts, bankruptcy is the only tool left to us to finally set the fiscal ship of the Central Coventry Fire District on the right course. I fully expect the district to emerge from the bankruptcy with a reorganized and downsized operation that can pay back its debts and maintain a proper fire and rescue service, as well as assure tax stabilization for the residents.

 

 

“For about a year and a half, we have brought both sides – the Central Coventry Fire District and firefighting staff members – together to reconcile their differences. My administration has offered assistance, initiated back-and-forth discussion, and suggested and requested options. I have instructed members of my administration to continue the negotiations in hopes of working toward a resolution. The cost of the fire district has risen beyond the willingness of the taxpayers to pay, and now bankruptcy is the only means available to restructure the district’s operations and obligations to restore it to fiscal solvency and stability for the future. While we are unable to predict how long the bankruptcy will take, our objective is to conclude it as soon as possible and obtain a confirmed plan to provide the district with a balanced budget for the next five to six years.

 

 

“Throughout my career as a mayor, senator and governor, I have been sensitive to striking the balance between the voice of the local taxpayers and the employees who work in our cities and towns.”

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

Jared Pliner contributed to this report.

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