Central Falls, R.I., Declares Bankruptcy

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Retired Central Fall, R.I., firefighters Rick McDermott, left, and Paul St. George, right, react as it is announced that the city will file for Chapter 9 bankruptcy protection. (AP)
Retired Central Fall, R.I., firefighters Rick McDermott, left, and Paul St. George, right, react as it is announced that the city will file for Chapter 9 bankruptcy protection. (AP)


CENTRAL FALLS, R.I. - The state-appointed receiver overseeing the cash-strapped Rhode Island town of Central Falls has filed for bankruptcy on the city's behalf in an effort to help it get back on its feet.

Receiver Robert G. Flanders and Rhode Island Gov. Lincoln Chafee announced the step - which Flanders has described as a last resort - at a news conference at City Hall. Flanders filed the legal paperwork seeking bankruptcy protection Monday.

"From the ashes of bankruptcy Central Falls will rise again," Flanders said.

Flanders had earlier indicated that seeking Chapter 9 bankruptcy protection in federal court might be the only option unless municipal retirees and city workers made major voluntary concessions. Retirees, for instance, were asked to take cuts of up to 50 percent to their pensions, a move they did not accept ahead of last Thursday's deadline, set by Flanders.

With the city now seeking bankruptcy protection, Flanders said he plans to reduce pension benefits beginning in late August. He has asked the federal court to immediately reject collective bargaining agreements. He said the next set of pension payments will reflect at least the cuts he outlined to city retirees.

In addition, he said city workers will face layoffs.

Flanders called the step unavoidable, as taxes have already been raised and city services have been cut "to the bone."

Bankruptcy will allow Central Falls to "reinvent itself as a viable community," Flanders said.

Chafee said the move is a "difficult" decision but that it's needed in light of Central Falls' "dire" financial outlook.

"We're not going with a band aid-approach," Chafee said. "We're going to tackle this and that's a positive."

Flanders said he would hope to have a plan of recovery to present to the judge at the outset of proceedings in an effort to prevent a protracted bankruptcy.

"We need to come out of this with a sustainable plan for recovery," he said last month after a meeting with retirees.

Central Falls, a city of 19,000 residents about a 15-minute drive north of Providence, has $80 million in unfunded pension and benefits obligations and $5 million deficits projected for each of the next five years. The city has found itself the subject of national headlines over its floundering finances and a high school so troubled that all its teachers were fired in one fell swoop last year, but eventually rehired.


The mayor, Charles Moreau, and City Council president, William Benson Jr., who were demoted to advisers after the state stepped in last year, have been critical of the receiver. They say it was clear long ago that bankruptcy was the only option.

"That's what we wanted to do almost a year and a half ago," Benson said Monday. "It can't be any worse than it is. It just can't."

Moreau said the city has no choice. "Unfortunately this is the route we've got to go. At the end of the day, fiscal stability is of the utmost importance," he said.

U.S. Bankruptcy Judge Frank Bailey of Massachusetts has been named the judge in the case.

Municipal bankruptcies are relatively rare, but several jurisdictions have found themselves on the cusp. Jefferson County, Ala., last week postponed a meeting to consider whether to go that route; officials will consider their options Thursday. Harrisburg, Pa., has also been flirting with Chapter 9 in the face of a fiscal crisis.

Vallejo, Calif., filed for Chapter 9 in 2008 and is only now ready to emerge from it. Those proceedings have cost millions of dollars.


This segment aired on August 1, 2011.


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