It’s official – Central Falls files for chapter 9 bankruptcy

My story is here. Quick notes on my Twitter feed, too. More to come.

Update: Here’s the full story I filed for shortly after 11 a.m.

CENTRAL FALLS, R.I. (WPRI) – Central Falls filed for bankruptcy in federal court on Monday after the cash-strapped city’s receiver decided there was no other way to fix its finances.

Gov. Lincoln Chafee joined the receiver, former Rhode Island Supreme Court Justice Robert Flanders, to make the announcement in the City Council chambers at Central Falls City Hall. It is the first time a municipality in Rhode Island has ever filed for bankruptcy.

“Today’s decision was made with deep concern for the residents of Central Falls,” Chafee said.

The decision to file for protection under Chapter 9 of the federal bankruptcy code had been expected since late last week after the city’s retirees refused to agree to deep cuts in their pensions.

“Although we did everything feasible to avoid filing for bankruptcy, in the end we were left with no other practical option,” Flanders said.

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.

City employees’ health plans will change effective immediately, with new co-payments and deductibles. The next round of pension payments to retirees in late August and early September will be reduced significantly; 42 pensions will be cut by half, while 29 won’t be lowered, an administration official said.

“None of us blame the retirees for this situation,” Flanders said. “However, unfortunately, they must be part of the solution if the city is to regain its sound financial footing.”

The filing comes nearly 15 months after Mayor Charles Moreau and the Central Falls City Council declared the city insolvent and filed for receivership, a state-law version of bankruptcy.

Frank Bailey, chief judge of the U.S. Bankruptcy Court for the District of Massachusetts, has been named to preside over Central Falls’ case by the 1st Circuit Court of Appeals. Flanders said he plans to file a restructuring plan by the end of August, and hopes the city could be out of bankruptcy within six months.

“We don’t want to repeat the Vallejo experience, that’s for sure,” Flanders said, referring to the California city that has been in bankruptcy since 2008.

Central Falls has promised its retirees $80 million worth of pension and health care benefits, and is on track to spend $22 million this fiscal year even though its total revenue will only be about $16.4 million. The city’s main account is projected to be in the red every month this year, Flanders said.

“We have to match our revenue to our expenditures,” Chafee said.

Flanders blamed the city’s pension liabilities in particular for its financial failure, as well as past leaders’ decisions to approve “unaffordable” compensation for unionized workers.

Flanders said he is in talks with neighboring cities including Lincoln and Cumberland about possibly sharing services. He also said some employees will be laid off as part of the bankruptcy plan.

Central Falls’ school system, which has been paid for by state taxpayers since a previous financial crisis in the early 1990s, is part of the bankruptcy filing but will not be restructured as part of it, Flanders said. But he is requiring the schools to get his approval for expenditures over $25,000 and new union contracts.

General Treasurer Gina Raimondo said she does not “expect today’s move to hinder the state’s ability to access the bond markets in the coming months.” She also said the bankruptcy filing made her and the governor “even more resolved” to overhaul the state’s pension system this year.

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