PROVIDENCE, R.I. (AP) – The cost of the state-appointed receiver and legal fees related to bankruptcy proceedings in the Rhode Island city of Central Falls is nearly $400,000 more this fiscal year than budgeted, and the total spent on the receivership is expected to reach $2.26 million by July.
State Revenue Director Rosemary Booth Gallogly said a supplemental budget request released Tuesday by Rhode Island Gov. Lincoln Chafee includes $392,000 in funds for the salary of the state-appointed receiver, Robert G. Flanders Jr., and attorneys’ fees to several firms. If legislators approve the extra funding, the state would spend at least $1.09 million on the receivership this fiscal year.
But it’s Central Falls that’s on the hook for that amount, Gallogly said, under the receivership law approved by the General Assembly in 2010. The state has already sent the city a bill for $1.17 million to cover costs associated with the receivership last fiscal year.
According to the state, about $300,000 of that stems from an unsuccessful court challenge waged by the mayor and four of the city’s five councilors, who said the receivership law was unconstitutional. A state judge ruled that the city councilors and mayor are responsible personally for those costs.
Gallogly said she wants the city to be allowed to defer its payment until 2021. That means it does not have to be taken into consideration in the city’s recovery plan, which Flanders laid out in September in a five-year budget document.
City Council President William Benson Jr. doesn’t think Central Falls should have to pay the receivership costs related to the bankruptcy since it wasn’t the city that sought bankruptcy protection _ it was Flanders. Benson called it money wasted.
“I think that $1 is a lot of money for what they’re doing,” he said. “How has he saved any money? The only money he’s saved is he cut pensions and he did away with jobs. Nobody knows what’s going on with these people. He’s the one who declared bankruptcy. Not the mayor, not the council. He did. Let him pay for it.”
Gallogly explained the supplemental request by saying it is “extremely hard” to predict the costs of the bankruptcy. She said the time spent by Flanders, his main legal team at Orson & Brusini and other attorneys has increased as the case has progressed through U.S. Bankruptcy Court.
Flanders filed for bankruptcy protection on the city’s behalf in August, saying it was the only way to get Central Falls back on solid financial ground. The first state-appointed receiver, Mark Pfeiffer, blamed the city’s chronic budget problems _ Central Falls began the year with a $6 million shortfall _ on “unsustainable” pension and benefits costs, expected revenue it never got from the Wyatt detention center and bad fiscal management by local officials.
Elected leaders in Central Falls, a 1.3-square-mile city of 19,000 residents several miles north of Providence, have said a loss of state aid and declining tax revenues contributed greatly to the fiscal woes.
Part of the money in Chafee’s supplemental budget request would go to cover Flanders’ salary as receiver. His initial contract, beginning in February 2011, was for not more than $250,000 in compensation for a period of up to 12 months, according to a copy of the document, which was drawn up by Flanders and signed by Gallogly.
He was paid $30,000 a month through June, after which a new contract was signed; that contract said he would be paid $30,000 a month and stipulated no annual limit. He switched to an hourly rate as of Dec. 1, capped at $30,000 a month, according to the governor’s office. Flanders was paid $330,000 through Dec. 31.
The Central Falls mayor made close to $72,000 annually before the position’s salary was cut under the receivership to $26,000. Pfeiffer was paid just over $197,000 from July 2010 through February 2011, Gallogly’s office said.
Flanders said he was not specifically familiar with the supplemental request but that the investment in the receivership will pay “huge dividends” for the state. He said the city is already realizing millions in annual savings as a result of his office’s work.
Flanders, an attorney and former state Supreme Court justice, said of his contract that the state preferred to cap his monthly payment because his services would have cost much more if he had charged his normal hourly rate. He said he is effectively working for less than a third of that rate, in part because his work in Central Falls precluded him from taking more lucrative work.
Gallogly said Chafee’s budget for the coming fiscal year seeks $300,000 for Central Falls legal costs, but no money for a receiver because the hope is that Central Falls will have emerged from bankruptcy by then. Gallogly said she expects some level of state oversight for five years.
“We’re trying to set it up so these things really can’t unravel,” she said. “We don’t want to risk throwing too much at the city at once.”
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