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."

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

U.S. Bankruptcy Judge Frank Bailey of Massachusetts has been named the judge in the case. Flanders said he hopes to have a plan of recovery to present to the judge within 30 days in an effort to prevent a protractedbankruptcy. Ideally, he said, Central Falls would get into and out of bankruptcy in six months.

Democratic state Sen. Elizabeth Crowley, who represents Central Falls, called the bankruptcy filing premature, saying Flanders should have given retirees more time to consider the concessions and offer up a counter proposal. Nearly 60 of them had asked for additional time.

Once the city's finances stabilize, she said officials should look at ways to make up for lost pension benefits, possibly by negotiating new pensions.

"These numbers represent Joe and John and Jane and Mary," said Crowley, a life-long resident of city. "These numbers are people, and I'm not going to let anyone forget it."

Acting Fire Department Chief John Garvey said negotiations with Flanders had been ongoing and that department employees had agreed to what he called "sizable" cuts.

"When you're negotiating, you can't give up everything," he said. "Do you want us to apply for food stamps after you make the cuts?"

He said the department cannot withstand any layoffs without risking public safety.

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.

Democratic state Rep. Agostinho Silva has lived in Central Falls for 27 years. He said he worries that no matter what happens in bankruptcy court, someone is going to pay — literally and figuratively — for the city's financial problems. Tax increases and service cuts hurt residents, he said. Layoffs or pension cuts hurt city workers and retirees.

"One way or another someone is going to get hurt," he said. "I just want what's best for the city and to make sure our residents are not overlooked."

He said he doesn't want to see Central Falls dissolved or merged into a neighboring community like Pawtucket.

"I want to make sure the city keeps its identity," he said. "People are very proud of Central Falls. We know we have our problems. But it's our city."

Pete Zabek, 59, who has lived in Central Falls his whole life, pointed fingers at the city's elected officials.

"I think you can blame these mayors who have been on the watch all these years," said Zabek, who was forced to retire from warehouse work in 1986 because of a disability.

"Somebody's got to do something," he said of bankruptcy. "It's going to take a long time to straighten this mess out."