If there can be such a thing as a successful municipal bankruptcy, then the one that Central Falls, R.I., has gone through probably would qualify. The city filed for bankruptcy on Aug. 1, 2011. The bankruptcy ended a little over a year later, and this past April the city came out of receivership. Bankruptcy Judge Frank J. Bailey called the Central Falls process an example for the nation. And there are indeed lessons for public officials everywhere in the story of how three individuals designed and executed Central Falls’ debt adjustment plan.
Gayle Corrigan, chief of staff for the city’s receiver, Judge Robert Flanders, is a CPA with an MBA in accounting. Turnarounds are what Corrigan does, and she says she’d seen nothing as bad as Central Falls. No one knew how much money the city had or how much it owed. There were 54 different accounts, some of which had been forgotten. When Flanders sent her to ask the state for $2.6 million to pay immediate bills, a sweep of all the accounts revealed that the city actually had $3 million it had been unaware of.
Corrigan’s strategy in dealing with the city’s unions was to talk plainly, show them the numbers and get them involved in the solutions. And, she says, the biggest solutions came from Mike Andrews, the president of the firefighters’ union local, and Joe Andriole, the business agent for the statewide fire union.
What was different with Corrigan, Andriole says, is that there was no ideology and she held no preconceptions about labor. The firefighters, who already had been through two rounds of concessionary bargaining, decided to come to the table yet again. “We gave back as much as we could on the economic side of the agreement,” Andriole says.
Their suggestions, reductions in minimum staffing and consolidation of the dispatch function, produced substantial savings. And in listening to the unions, Corrigan learned that the city’s three unions had nine different health plans. Standardizing the plans saved the city money and made the plans better for everybody.
Both Andriole and Andrews say that with Corrigan they felt that the numbers they were seeing and the answers they were getting were truthful—something Andrews says “we didn’t see before.” For example, the city’s pension numbers had not been available to the union. Corrigan gave them the numbers promptly and in writing. And, Andriole says, if Corrigan found other money in the city’s accounts, she put it on the table to take some of the sting out of the concessions the unions were making.
Andrews says his members lost a lot but that they accomplished their goals of protecting jobs and maintaining a contract framework. His union’s vote to accept the agreement was unanimous.
So was the bankruptcy a success? The city could have been tied up in litigation for years, as has been the case with most other municipal bankruptcies, but because the union leaders trusted Corrigan, they chose to negotiate rather than litigate. The lessons for public managers are clear. Listen, don’t be ideological, level with the unions, show them the numbers and enlist their support. In the end it’s about the math, but it takes trust to make the math work.