The Harrop Receivership/Bankruptcy Plan

Daniel Harrop, the Republican candidate for Mayor has announced that he will undertake a major initiative to reduce the City’s structural costs by moving the City into receivership. He has announced this signature initiative in many places, as noted in a post on, among other places.

More specifically, Dr. Harrop proposes using the receivership process to adjust the City’s labor costs and pension obligations. The problem with his plan is that it is legally impossible, because the Rhode Island receivership law would not allow Providence to go into receivership, and because even if Providence did go into receivership, the receiver would not have the legal authority to adjust existing labor contracts (in which the pension program is established).

The Rhode Island municipal budget intervention law appears at Chapter 45-9 of the Rhode Island General Laws. It provides for escalating State intervention when a municipal government encounters fiscal distress. A mayor may request the State appoint a fiscal overseer under Section 45-9-3. The overseer works with City government to develop a 3-year plan, but has no authority to impose solutions on the City. Should this step not stabilize the City’s finances, the State may appoint a budget commission under Section 45-9-6. The budget commission has the authority to enter into new contracts, but does not have the authority to alter existing contracts. Should the budget commission fail to stabilize the city’s finances, the State may appoint a receiver pursuant to Section 45-9-7. Once again, however, the law does not authorize the receiver to change existing labor agreements. The only route for such an adjustment is federal bankruptcy law under Chapter 9. The City cannot enter bankruptcy without the State’s permission, either through an act of the General Assembly or from the receiver. Also, the bankruptcy court will not approve a bankruptcy unless the City is insolvent, which Providence currently is not. For all of these reasons, the Harrop receivership plan is legally incapable of achieving the goals he proposes for it.