Flanders: Central Falls bankruptcy now ‘more likely than not’
June 22nd, 2011 at 7:00 am by Ted Nesi under Nesi's Notes
The House Finance Committee’s refusal to pony up money to cover Central Falls’ budget deficit means the cash-strapped city may file for Chapter 9 bankruptcy before the end of the summer, its state-appointed receiver says.
“I think it’s more likely than not,” Robert Flanders told WPRI.com late Tuesday. “I don’t want to handicap it beyond that, because I want to give everybody a chance to step up here.”
Flanders is trying to secure large concessions from the city’s unions to avoid a Chapter 9 filing in federal court. He said the city is “rapidly running out of cash” and the denial of a state bailout will require the talks to move even faster.
“There are going to be very big ‘asks,’ so it’s hard to be optimistic about it,” he said. “On the other hand, bankruptcy could be even worse, and as I’ve said before, a haircut still looks better than a beheading.”
The finance committee approved a budget proposal last Friday that does not include $4.9 million Governor Chafee wanted to spend to buy more time for Central Falls to stabilize its finances. The city filed for receivership more than a year ago.
“I’m not surprised at all,” Flanders said. “The suggestion [from lawmakers] was, ‘We’ve got other distressed communities; why should we help Central Falls over the others? We’re already funding the [city's] schools to the tune of $42 million a year. Enough is enough.’ ”
House spokesman Larry Berman was not immediately available to comment on the finance committee’s decision.
Last week, Moody’s Investors Service downgraded Central Falls’ bond rating again and gave it a negative outlook, saying the city could default on its obligations early in the new fiscal year that starts July 1. Flanders acknowledged that’s a possibility.
A decision on whether to file for bankruptcy is likely to come “over the next several weeks – certainly no later than the end of August … and perhaps much sooner depending on our cash flow, how well we collect our taxes, how well we manage our other obligations,” he said.
Related: What filing for Chapter 9 bankruptcy would mean for Central Falls
Tags: bankruptcy, central falls, chapter 9, city government, general assembly, government, municipal, robert flanders, state government
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
Last year, the City of Prichard, Al. declared Chapter 9 bankruptcy. What happened in Prichard may create a crisis for CF and it’s firefighters and police.
The Federal Judge in Prichard first decided that pensioners are nothing more than unsecured debtors and have no claim to pension benefits as deferred compensation (i.e. administrative expenses). Thus pension benefits were temporarily ended even for those already out on retirement.
Then the case was dismissed. But it was dismissed because Prichard didn’t have a large amount of municipal debt and only had “pension debt” thus it did not meet the threshold for filing a Chapter 9 bankruptcy.
This is not the case in CF. Thus a federal judge might look over his shoulder at Prichard as to how the original decision was handled in Prichard regarding the initial termination of the pension payments.
Only the attorneys will be able to figure this out. But what happened initially in Prichard to the retirees may be telling to what is about to happen in CF.
Gary’s right – the Prichard story should definitely be alarming for city officials and especially retirees in Central Falls. The New York Times offered this overview of what went wrong last December:
http://www.nytimes.com/2010/12/23/business/23prichard.html?pagewanted=all
According to the local paper, a deal was recently reached that would see some retirees receive about one-third of the pension payments they were promised:
http://blog.al.com/live/2011/06/prichard_pension_deal_could_le.html
The big question in Central Falls is its John Hancock pension plan for police officers and firefighters hired after 1972. Last I read, it was on track to run out of cash to pay benefits later this year.
Ted,
It appears that the issue of pension benefits in a Chapter 9 filing for CF may be the first such case of it’s kind in the US. In the Chapter 9 case of Vallejo, California, the parties ended up in mediation and the judge never actually decided anything. In Prichard, the case was dismissed.
So it may be that as far as pension benefits are concerned, this may be the first of its kind Chapter 9 case in the US.
Some pensioners may have abused the system, but most didn’t. The fallout will be harsh and I hope that a solution can be found.
Thanks for posting the links!
Gary, I think that also points to why the unions (and other stakeholders) may be more willing to reach a bargain than some might believe – as Flanders keeps saying, “better a haircut than a beheading.”
There would be real human pain if the John Hancock plan simply stopped mailing its checks. It covers police officers and firefighters who retired as early as 1972, which is 39 years ago – I don’t know the breakdown of its beneficiaries, but we could be talking about hardship for some extremely elderly individuals who served the city.
As for Chapter 9 – still an “if,” I should point out – I’m sure the case would be closely watched, for this reason and others, by people far outside Rhode Island’s borders.
Ooops! Unsecured “creditors” and not “debtors” in my above post.
[...] Is it possible Central Falls will stop paying pensions this fall like Prichard, Ala., [...]
Time to break up the corruption of Central Falls. Split it into pieces and make the neighboring cities take the pieces. The massive amounts of money saved by getting rid of Chuck Moreau and the corruption crew will be a great start to fixing Rhode Island. Of course, let them go into bankruptcy first so that they can stop paying all those ridiculous pensions that were given as gifts from CF’s corrupt past, then investigate the dozens and dozens of so-called “disabled”..cough, cough..firefighters who are collecting almost full pay for life because they amazingly pulled a back muscle on their last day before retirement…Get rid of all of City Hall. Oh, by the way, crack down on illegal immigrants who don’t pay taxes, get some tax payers in those apartments, and the money will flow a lot better.