Small Rhode Island Town Goes Bankrupt

Central Falls, Rhode Island, a little town in the northeast part of the state, with a population of only has 19,376, has gone into Chapter 9 bankruptcy.

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.

"As the receiver, Flanders remains in charge of the city and can make decisions with a judge's approval. He has already asked the U.S. Bankruptcy Court to throw out Central Falls' collective-bargaining agreements with the city's police, fire and municipal unions," according to WPRI.

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.

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inventreprenuer

Now can we say that the promises that have been made to all of the teachers, fire fighters, police officers, etc. were far from possible, and it was nothing more than a Ponzi scheme (let the new money pay for old promises)? Or should we keep saying we want what we want no matter if it isn't there?

August 03 2011 at 12:13 PM Report abuse +1 rate up rate down Reply
tsafa

Too bad Small Towns can't print money the way the Fed Govt does....

Raising the debt ceiling means printing more money (electronically). After the debt ceiling is raised the Department of Treasury will print up some new government notes, bonds and bills and sell them to the Federal Reserve. The Federal Reserve will then create some new money and give it to the US Treasury. All this does is dilute the existing currency and weaken the value of the dollar. Businessmen pay close attention to the actions of the government in regard to creating new money. The second the debt ceiling is raised, they raise prices to compensate for the diluted currency. Raising the debt ceiling will accomplish nothing in the long term except put government deeper into a debt they can not pay back.

http://libertythinkers.com/education/debt-ceiling-hocus-pocus-illusions/

August 03 2011 at 10:35 AM Report abuse +1 rate up rate down Reply
Sonny

Why didn't they just raise thier debt ceiling.........seems to be fashionable these days........../

August 02 2011 at 4:40 PM Report abuse +3 rate up rate down Reply
bill

all thr politicon's and there flunky's haven't stop stealing yes stealing.masters at double book keeping.locol,state or national a have one thing in common,steal taxpayers money and say "who me ".if you don't belive that than you belive in the tooth fairy

August 02 2011 at 4:12 PM Report abuse +2 rate up rate down Reply
1 reply to bill's comment
Sonny

If the politicians can't steal your money, they simply borrow it and put your name on the note.....or just tell ben to print somemore! It's almost over now and guess what......people will be wondering why we didn't listen to the
Tea- Party!

August 02 2011 at 4:46 PM Report abuse +5 rate up rate down Reply
jerald3739

The biggest revelation that is coming out of all these financial problems is that the people elected to govern have not a fiscal brain in their heads. The committments they made to union pension demands were made without any thought about affordability. Compounding this stupidity was the unfunding of these obligations and the spending of any existing assets. It is too bad that you can't punish honest ignorance. As for the employees of bankrupt cities--well the sweet excess of money they were happy to get from them will now not be coming. Too bad.

August 02 2011 at 3:27 PM Report abuse +1 rate up rate down Reply
Farina Family

I guess all the foks blaming on the East Coast liberals are forgetting About republican Alabama.

August 02 2011 at 3:21 PM Report abuse -1 rate up rate down Reply
1 reply to Farina Family's comment
mclockhart

I highly doubt that Pritchard Alabama is a republican stronghold. It is 85% black and 97% or so of blacks voted for Obama last election. They may not be flaming liberals like you get in Rhode Island and CT, but they still want their free stuff.

August 02 2011 at 3:44 PM Report abuse +3 rate up rate down Reply
****GI GI ******

How many more Cities will follow?

August 02 2011 at 1:25 PM Report abuse +3 rate up rate down Reply
AL

The article doesn't mention the political party that the city's administration belongs but I would bet a days pay they were all Democrat liberals who bought votes with promises that even they knew were unsustainable. This scenario will be repeated thousands of times and God forbid may include the Federal government if some sanity isn't restored to the congress. But the last debt ceiling vote only made a left turn from going over the cliff to find a higher spot to go over at a later date.

August 02 2011 at 12:47 PM Report abuse +4 rate up rate down Reply
1 reply to AL's comment
Dylan

As I said to someone else:

I happen to live in the town north of Central Falls. Our town is run by these evil 'liberals' and it has a balanced budget. Our town's median income is over $70,000.

Central Falls has a median income of $22,000. They had several poor mayors and no money to start with. They are the poorest community in the entire state. THAT is why they went bankrupt. They couldn't afford the basic services that any other normal community can afford, and tried to live an American lifestyle on an Eastern European income level.

August 02 2011 at 1:14 PM Report abuse -2 rate up rate down Reply
Nanu-Nanu

Another community living beyound its means. Of course this community resides in the liberal northeast. Isn't it fun spending everybodies money but your own?

August 02 2011 at 12:39 PM Report abuse +3 rate up rate down Reply
2 replies to Nanu-Nanu's comment
Dylan

Another IGNORAMUS blaming it on the democrats.

I happen to live in the town north of Central Falls. Our town is run by these evil 'liberals' and it has a balanced budget. Our town's median income is over $70,000.

Central Falls has a median income of $22,000. They had several poor mayors and no money to start with. They are the poorest community in the entire state. THAT is why they went bankrupt. They couldn't afford the basic services that any other normal community can afford, and tried to live an American lifestyle on an Eastern European income level.

August 02 2011 at 1:11 PM Report abuse -4 rate up rate down Reply
Dylan

Not to mention Central Falls has a per capita income of only $10,000!!! That's below countries like Botswana (14,000), Kazakhstan (12,700), and Venezuela (12,700) and on par with countries like Iran (10,600) and Dominica (10,400).

They couldn't afford the basic services that normal communities take for granted, not to mention they were plagued by ineffective leadership (mayors paying extra for services that just happened to be run by friends), and a crippling retirement program that city officials enacted for themselves.

August 02 2011 at 1:21 PM Report abuse rate up rate down Reply
KSMITHSPECTRUM

Where did this city get the idea they would be able to support those pensions. I'm sure it sounded good at the time but now reality has landed and a sad day for all.

August 02 2011 at 12:16 PM Report abuse +1 rate up rate down Reply