Small Rhode Island Town Goes Bankrupt
The city has been struggling for some time but the final decision to put the city into Chapter 9 was made by Governor Lincoln Chaffee. General Treasurer Gina M. Raimondo released a statement Monday in which she said "While today's difficult decision by Governor Chafee to file for bankruptcy was not made lightly, I am hopeful this means the citizens of Central Falls can begin to move forward and rebuild their community.
"Although we did everything feasible to avoid filing for bankruptcy, in the end we were left with no other practice option, said former Rhode Island Supreme Court Justice Robert Flander, who was the city's receiver for more than a year.
The city has 30 days to file a financial plan to operate as a viable entity. The case is In re City of Central Falls, 11-13105, U.S. Bankruptcy Court, District of Rhode Island.
Those who are part of the city's pension plan may be hardest hit. According to Bloomberg," The pension's obligations were $48 million greater than the fair value of its assets as of June 30, 2010. Central Falls in fiscal 2011 continued its practice of not making its required contribution to the municipal pension and drew on existing plan assets to pay benefits, Moody's said."
The New York Times recently reported that "the impoverished city, operating under a receiver for a year, has promised $80 million worth of retirement benefits to 214 police officers and firefighters, far more than it can afford. Those workers' pension fund will probably run out of money in October, giving Central Falls the distinction of becoming the second municipality in the United States to exhaust its pension fund, after Prichard, Ala."
Rhode Island has been one of the most economically troubled states in the country during the recession. Its unemployment rate is routinely in the top five among all states.
For Central Falls, whose motto is ironically "A City with A Bright Future," the economic struggle proved too much to bear. But it's not the first. Dozens of municipalities have filed for Chapter 9 over the past few decades. Now all eyes turn to Jefferson County, Alabama, where government officials are trying to avoid what would be the largest municipal bankruptcy in U.S. history.