Friday, June 24

A little town in a big financial hole

The plight of a small town in Rhode Island helps show how the federal government got into its current position of huge debt and unfunded financial obligations.

Central Falls, RI, was brought to financial ruin by a combination of innumeracy (failure to understand numbers), corruption and greed. The town's leaders have obligated it to pay $32 million in future health-care costs and $48 million in pensions. Problem is, the town has just 19,000 people and an annual budget of about $16 million.

For years the town's elected leaders approved overly-generous contracts with city workers. Why not? It made them more popular with the workers--at no cost to themselves, since taxpayers would pick up the tab.

One of the central actors is the town's four-term Democratic mayor, Charles Moreau. By most accounts Moreau is thoroughly corrupt, petty and vindictive, but could smile and glad-hand when necessary. When the town was put under state receivership last year Moreau was being paid $71,700 per year--which strikes me as outrageously excessive to head a town with just 19,000 residents.

And while I have seen any figures for it, I suspect his calculated pension is huge and was approved by a city council dominated by his friends.

Moreau is also being investigated for giving a friend of his a contract to board up abandoned buildings in the city--the NY Times says "dozens" of buildings--at a cost to taxpayers of $2 million.

It's hard to know whether this was excessive or whether the job was put out for bids, but the contractor seems to have given the mayor a kickback of somewhere between $850 and $6000, which suggests the contractor felt he'd gotten a sweet deal.

While this kind of activity by government officials--bribes, giving sweetheart contracts to friends, taking kickbacks--seems to be extremely common, the numbers involved are trivial compared to the costs of pensions and health-care payments to retired government workers. Most politicians indignantly claim that they didn't benefit at all from such city contracts, and yet the damage is still done.

What's needed is a way to force politicians to stay within a budget. But I don't see how to do it, because the pols control all the levers. Elect better candidates, I guess.

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