Ron Davis only recently found out about Central Falls’ predicament.

“Somebody sent me an e-mail two days ago,” Davis, the mayor of Prichard, Ala., said Thursday in a telephone interview.

But his city of 23,000 residents along Alabama’s Gulf Coast and the Rhode Island city in bankruptcy court, both with similar population sizes, have experienced major struggles with pension-debt gridlock.

Twice-bankrupt Prichard, which originally filed under Chapter 9 in 1999 and exited in 2007, ran out of pension money in 2009, five years after actuaries predicted it would do so. It stopped sending monthly checks to retirees, in violation of state law, saying it was flat broke. Pensioners sued.

“It was difficult, quite naturally. No one wanted to take a cut,” Davis said.

Last August, Judge William Shulman of the U.S. Bankruptcy Court for the Southern District of Alabama dismissed Prichard’s second bankruptcy filing, saying the city was ineligible under Chapter 9.

But the city last May was able to strike a deal with local unions, in which retirees got between 20% and 25% of their originally promised pensions.

Central Falls, meanwhile, filed for Chapter 9 bankruptcy protection last week in the state capital, Providence. Its state-appointed receiver, Robert Flanders, asked the court to invalidate pension plans after retirees rejected a cut in their pensions of up to 50%.

The city, whose population is about 18,000, owes its retirees $80 million in benefits. Its fire and police pension fund is 92% unfunded and Flanders said lacking cuts, it could run of money in October.

Standard & Poor’s on Friday reaffirmed its C rating for Central Falls; its outlook is developing.

Flanders’ attorney, Theodore Orson, invoked the Alabama city after a hearing last week before Judge Frank Bailey. If Central Falls can’t slash its budget, Orson said, “we will have no money to pay pensions and we’ll do like they did in Prichard, Ala. We’ll just go and say to them, 'We’ve got no money and we won’t pay.’ ”

Davis realizes Prichard has company well beyond Alabama, home to bankruptcy filings by one county and four cities since 1981. That doesn’t include Jefferson County, on the verge of the biggest Chapter 9 filing in history. It owes about $4.1 billion, though sewer bonds, not pensions, are that government’s albatross.

“I see this happening more often in cities and towns throughout the country. I see them going through the same issues as Prichard,” said Davis, the mayor since 2004.

“All these situations have to do with pensions,” he said. “These pension plans were set up in the 1950s and 1960s to compete with private industry, to get people into government work.”

Asked to describe Prichard’s situation today, Davis said: “We’re working real hard at it.”

According to the Press-Register of nearby Mobile, Prichard still faces $1.8 million in potential liabilities, largely from unpaid bills in the wake of its failed bankruptcy try. Its current budget is $10.2 million.

Keeping up with the Joneses within the public sector may also have contributed to Central Falls’ troubles, according to Brian Fraser, a partner in law firm Richards Kibbe & Orbe LLP.

“If one of the cities generally provided a set of pension benefits, the others have been following suit, and that may have contributed over 20 to 30 years to this situation of unfunded obligations,” he said.

Flanders, in a recent interview, said Central Falls, too, is not alone. “In general, it appears that municipalities are suffering from the same plight. Pension benefits and other expenses are creating too much risk,” he said.

In fact, Moody’s Investors Service on Friday cited pensions in lowering West Warwick, R.I.’s rating on $27 million of general obligation unlimited-tax debt to Baa1 from A1.

That town’s pension plan  is 30% funded, according to the Rhode Island Public Expenditure Council.

Fears of other Central Falls-type situations prompted Rhode Island two months ago to pass a law that established a priority for GO bond and note payments holders over other creditors.

The move appeared to protect bondholders, though some legal experts question how it will hold up in federal bankruptcy court.

In another development that illustrated the Central Falls domino effect, Moody’s Thursday placed bonds issued by a conduit agency, the Rhode Island Health and Educational Building Corp., on review for a possible downgrade.

Central Falls is among the pool of participating communities and school systems in the corporation, which provides access to financing for capital projects through the sale of tax-exempt bonds.

Moody’s linked the agency’s rating for Series 2007 B bonds with any further downgrades of Central Falls’ Caa1 general obligation credit rating.

The Central Falls pension situation resonates well beyond Rhode Island. In New Jersey, for instance, pension liabilities contributed in part to two downgrades this year to the Garden State’s GOs.

Moody’s and Standard & Poor’s downgraded the state, while Fitch Ratings assigned a negative outlook. Moody’s now rates New Jersey’s GOs Aa3, while Standard & Poor’s and Fitch rate it AA-minus and AA, respectively.

According to a debt overview report by Janney Capital Markets, pension funding in the state is 56.4% as of June 2010, well below the 80% level many analysts consider adequate.

“The state has an elevated level of debt and liabilities,” the Janney report said, though it did characterize New Jersey’s outlook as positive.

A report issued last year by researchers at George Mason University’s Mercatus Center in Arlington, Va., said that lacking gains in investment income, the first of New Jersey’s pension funds for public workers could go broke by 2013.

Meanwhile, if Central Falls moves quickly and clears Chapter 9 within six months, a goal that attorneys and Bailey have set, the city’s case could prove a bellwether.

“Two things are up for grabs,” Fraser said. “Is there the political will to make good on municipalities’ debt, and if Central Falls reorganizes its contracts and emerges successfully from bankruptcy, will it serve as a model?”

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