Bankruptcy 'last resort' for Rhode Island city

The state-appointed receiver overseeing Rhode Island's cash-strapped Central Falls on Monday filed for bankruptcy on the city's behalf in an effort to solve its fiscal crisis.

Receiver Robert G. Flanders described the step as one of last resort after city taxes had been raised and services cut "to the bone," and after municipal retirees and current workers failed to agree on deep — but voluntary — cuts to their pensions and benefits.

"From the ashes of bankruptcy Central Falls will rise again," Flanders said at a news conference at City Hall.

Flanders had earlier indicated that seeking Chapter 9 bankruptcy protection in federal court — a rare step for a municipality — might be the only option without major concessions from retirees and union groups. Retirees, for instance, were asked to take cuts of up to 50 percent to their pensions and to contribute a sizable amount to their health benefits. Only 12 of 141 retirees agreed to Flanders' proposal before last Thursday's deadline, and of those 12, nine would not have seen their pensions reduced.

With the city now seeking bankruptcy protection, Flanders said he plans to reduce pension benefits beginning in late August anyway; the next set of payments will reflect "at least" the cuts he outlined to retirees last month. Those cuts are designed to save about $2.5 million.

Flanders also asked the federal court to immediately reject collective bargaining agreements with police and fire department employees. In addition, he said city workers will face layoffs.

He described bankruptcy as the only prudent option and said it will allow Central Falls to "reinvent itself as a viable community."

Rhode Island Gov. Lincoln Chafee said the move represents 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 told The Associated Press. "We're going to tackle this, and that's a positive."

Central Falls, a 1.3-square-mile city of 19,000 residents about a 15-minute drive north of Providence, has $80 million in unfunded pension and benefits obligations and deficits of $5 million or more 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.

Flanders said Monday that the city had irresponsibly entered into unaffordable agreements with retirees. Officials have said it was also hard hit by a loss of state aid and expected revenue from the Wyatt Detention Facility that never materialized. Flanders' predecessor as state-appointed receiver, Mark A. Pfeiffer, also cited a "culture of government" that allowed the fiscal crisis to grow.

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 thatbankruptcy was the only option.

"Unfortunately this is the route we've got to go," Moreau said. "At the end of the day, fiscal stability is of the utmost importance."

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