NEW YORK - Fiscally troubled Central Falls, R.I., will need to go into federal Chapter 9 bankruptcy if recommendations by the state-appointed receiver — which include annexation by a neighboring city — are not successfully implemented, according to a
“State action is required if the city is to avoid fiscal collapse in its immediate future,” receiver Mark Pfeiffer wrote in the report. “Reform measures pertaining to pensions, retiree health benefits, and collective bargaining agreements included in this report will not be sufficient to restore the city to long-term health.”
Because those steps would not be enough, Rhode Island should subsidize the annexation of Central Falls by the adjacent city of Pawtucket or Central Falls should pursue the “regionalization” of services such as fire and police with a neighboring municipality, possibly under a new government structure with a professional municipal manager, according to the report.
“If these measures are not viable or are ultimately unsuccessful, the state receiver would need to utilize a federal Chapter 9 bankruptcy proceeding to restructure the city’s obligations,” Pfeiffer wrote.
Central Falls faces an $80 million unfunded pension and retiree health care benefit liability that it cannot fund through efficiencies or additional revenue, the report said. Compounding the problems, anticipated revenue from the Donald W. Wyatt Detention Center have not materialized.
Cumulative deficits over the next five fiscal years could total as much as $25 million for a city whose fiscal 2011 budget is $16.8 million, the report said.
Central Falls, which has a population of 18,928, went into judicial receivership in May after projecting a $3 million shortfall in its nearly $18 million fiscal 2010 budget, along with a $5 million budget gap for fiscal 2011. The city’s $23.4 million of outstanding general obligation debt was subsequently downgraded to junk by Standard & Poor’s and Moody’s Investors Service.
Those developments prompted Rhode Island lawmakers to enact a law preventing municipalities from going into receivership on their own and establishing a system for state intervention in fiscally distressed cities and towns.
In July, Gov. Donald Carcieri appointed Pfeiffer, a retired state superior court judge, to take over the city’s finances and government.
