Backing off of the Receiver (Not a Post About Ellis Hobbs)

In the last couple of Projo stories on the Central Falls receivership situation, no references have been made, in the voice of the omniscient news narrator, to the power of the receiver to either raise taxes or fire city employees. For example, today’s news staff story about the city’s bond rating being cut to a junk rating says that…

The court-appointed temporary receiver has the power to go over the municipality’s finances, approve or reject purchases and payments and, if the court approves, change contracts with unions and vendors.
I’m going to speculate that this is more than just an edit for space, and that some of the early descriptions of the receiver’s formal powers were overstated.
However, in Steve Peoples and John Hill‘s story on the statewide reaction, North Providence Mayor Charles Lombardi is quoted as equating receivership with a town government giving up control of its tax rate…
North Providence Mayor Charles A. Lombardi, already working with the state to shape his city’s $10.5-million deficit-reduction bond plan, said the contract-busting aspect of a receivership may be tempting, but would cede control of the town’s finances, particularly its tax rate.
…so there’s still some room for clarification on this.

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Warrington Faust
Warrington Faust
11 years ago

I have little knowledge of RI “receivership” laws, except to say that they differ significantly from other states, being more user friendly. My understanding is that this the result of a lawyer with a lot of friends in the 1930’s.
While I understand it is still possible to “swear the poor debtor’s oath” in other states, you will search in vain for a notice of a “Receiver’s Sale” in the Boston Globe.
Since RI bankruptcy lawyers sort of smile and speak in hushed tones about receiverships in RI, I am suspicious.
I am doubtful that receivers have the well established powers of a Bankruptcy Judge to “classify” and disallow claims, cancel contracts, substitute collateral and alter other security interests. I wonder what a judge might do with the “boarding up” claims in Central Falls? “Fraud” can be taken very seriously in Bankruptcy Court.

Tommy Cranston
Tommy Cranston
11 years ago

Actually, if (and I realize it’s an if) you can trust the projo, a receiver CAN:
“change contracts with unions and vendors”.
http://newsblog.projo.com/2010/05/central-falls-bond-rating-cut.html

Warrington Faust
Warrington Faust
11 years ago

Tommy,
As I said, I have no familiarity with RI receiverships, except that they are much more popular here than in any other state I am familiar with. Other states once had “Insolvency Courts”, but these have pretty much been abandoned.
Generally, a Receiver is appointed to take charge of the assets of an insolvent debtor and provide equitable payment to the creditors. The Constitutional provision for the “sanctity of contracts” makes me wonder what provisions a state can make. From their frequuency in RI, Receiverships must be more workable in RI than they are in other states.
As I said, RI bankruptcy attorneys smile when they are questioned about the origins of receivership proceedings in RI.

doughboys
doughboys
11 years ago

Projo is just parroting what people are telling them. They have done zero actual research into this.
Chapter 9 would not exist if state courts had the power to change debt structures and contracts.
Sure though the receiver has the power to fire and layoff the same as the city or town would since he or she is the city or town now.
They will not be able to throw out active contracts nor change debt structures with creditors. That ability is reserved for Chapter 9.
In the end thats the best news since it means layoffs will HAVE to take place although I predict that the unions will offer hollow concessions where they are paid every penny at a later date etc. Just like Carcieri ended up getting. If the receiver is a union shill they will accept that if not big layoffs are coming.
Another scenario is that the receiver tries to change contracts and debts then the unions and creditors get an injunction in Federal court – then the state steps in and promises to pay all shortfalls.
Whats funny here is we are already on the hook for their biggest bill – the school system and now Gist is proposing that the state take over the school building ownership – watch out because new buildings are the next thing coming watch and see.
State taxpayers will soon swallow CF’s pension fund payments.

Monique
Editor
11 years ago

“then the state steps in and promises to pay all shortfalls.”
… um, Doughboys, are the pertinent parties aware that the state is dead broke and doesn’t have the ability to pick up the cost of a pack of gum, much less the multi-million dollar debt of an entire municipality?

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