After hovering on the brink of insolvency for more than a year, Central Falls, Rhode Island has finally filed for bankruptcy.
State-appointed receiver Robert Flanders, who filed the paperwork today on behalf of the city, said the bankruptcy was “inevitable” after union retirees failed to agree to significant concessions. Flanders had sought about $2.5 million in voluntary pension and benefit cuts from the city’s unionized retirees.
“Everything was done to avoid this day,” Flanders said in a statement. “Services have been cut to the bone…taxes have been raised to the maximum level allowable. We negotiated with … the police and fire unions, without success, attempting to reach voluntary concessions, and we tried in vain to persuade our retirees to accept voluntary reductions in their benefits.”
With the city now under Chapter 9 municipal bankruptcy protection, Flanders said Monday that he plans to start reducing pension benefits at the end of the month. The AP reports that Flanders has asked the bankruptcy court to reject the city’s collective bargaining agreements. He also said city workers will face additional layoffs.
Central Falls faces $80 million unfunded pension and benefit obligations and a $4.9 million budget deficit. The city also has $20.8 million of outstanding general-obligation debt.
“The current situation is dire and it necessitates decisive steps to put the city back on a path to solid financial footing and future prosperity,” Rhode Island Governor Lincoln Chafee said in a statement Monday.
The city’s bankruptcy will likely test a new state law that gives GO bonds priority over other obligations. The law – hurriedly passed last month in anticipation of Central Falls’ filing — requires local governments to pay bondholders first and raise property taxes as much as necessary to make those payments.
Central Falls is one of a growing handful of U.S. local governments facing insolvency in the wake of the financial crisis. Jefferson County, Alabama could decide Thursday whether to file for the largest municipal bankruptcy in U.S. history.
For more on municipal bankruptcy, check out our interview with Chapter 9 attorney Jim Johnston, who represented Orange County during its 1994 filing, the largest municipal bankruptcy to date.
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