Confronting a frightening $4.2 million deficit that city officials say is “growing every day,” East Providence is testing the limits of labor law in Rhode Island. After slashing such other spending as important building improvements and maintenance, and failing to obtain the needed reductions through contract negotiations, the School Committee took bold action to cut costs.

It voted to unilaterally scale back teacher salaries by 5 percent, while requiring teachers to kick in 20 percent of the cost of health-insurance premiums, up from nothing. The committee also eliminated the buyback clause that gave teachers up to $5,100 for not taking the city’s health insurance.

Even those cuts will not be enough, officials say. They will save the district only $3 million.

“East Providence is flat broke,” Mayor Joseph Larisa said, adding, “The options left are a crazy 15 to 20 percent property-tax increase against our hard-hit taxpayers, bankruptcy or finally setting reasonable and fair compensation for all school employees. There is no fourth option.”

But whether elected officials even have the power to stave off a financial crisis by cutting compensation is an open question. Communities all over Rhode Island will be watching.

The teachers contract has expired, but union lawyers insist that under state law the old contract — whether the taxpayers can “afford” it or not — must remain in force until a new one takes its place. There is no exception for a fiscal crisis, the unions say. And why should teachers have to sacrifice more than other municipal employees to balance the budget?

Of course, all this gives the teachers union a powerful incentive to dig in its heels and refuse to accept a contract more in line with what the people of East Providence can reasonably afford.

With many middle- and lower-income people getting hammered by job losses and plummeting property values, it hardly seems the right time to slam households and businesses with a huge property-tax increase. Those on fixed or reduced incomes would be particularly threatened, possibly pushing them over the cliff into foreclosure or bankruptcy, which would further shrink tax revenues.

The courts will have to determine whether citizens have the right, through their elected officials, to curtail spending in a genuine crisis. If not, the General Assembly should reform the labor laws to give the people’s representatives reasonable powers to act in an emergency.

Another possibility, also painful, would be to declare municipal bankruptcy and let a judge void all the contracts. It may come to that in some communities.