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Central Falls – a tiny, cash-strapped Rhode Island town – is teetering closer towards bankruptcy in the wake of another credit downgrade.The Providence Journal reports that Moody’s Investor’s Service has downgraded Central Falls’ $20.8 million of debt to Caa1, citing growing fiscal problems that have heightened the risk of default.
The downgrade pushes the city’s bond rating deeper into junk bond status.
Central Falls expects to pay off $1.5 million of debt due June 30, the agency said in a statement, but “a significant cash shortfall will occur early in fiscal 2012, increasing the possibility of a failure to pay the $473,302 debt service payment that is due on July 15.”
The agency added that it is increasingly likely that Central Falls will not be able to stabilise its finances without a bankruptcy restructuring.
The report also cited the city’s $80 million unfunded pension obligation, which led Rhode Island to appoint a receiver last year to over see Central Fall’s finances. The city’s public safety pension plan could run out of money by October without additional funding or major concessions.
Central Falls now faces a $4.8 million shortfall in next year’s budget, according to state receiver Robert Flanders. If the city does not find an additional source of revenue to close the deficit, bankruptcy may be the only option left, Flanders told the Financial Times.
Chapter 9 municipal bankruptcy filings are still relatively rare. The only other municipality with a Caa1 rating is Jefferson County, the Alabama county that is on the verge of becoming the largest-ever municipal bankruptcy.
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