Holders of Central Falls, R.I., debt will get paid — at least that’s the plan, according to the court-appointed temporary receiver who is now running things.
“We fully intend to meet our bond obligations,” said receiver Jonathan Savage. “We don’t anticipate defaults at all.”
Much is uncertain in a city that has a $4.1 million tax anticipation note payment due June 30. Last month, Moody’s Investors Service and Standard & Poor’s downgraded Central Falls’ $17.1 million of general obligation debt to junk; Rhode Island and federal law enforcement were investigating a corruption complaint against the mayor; the city is facing a $3 million current-fiscal year deficit on its nearly $18 million budget; and the deficit will grow to a projected $5 million next year.
All this for a town that had a population just shy of 19,000 in the last Census.
In a petition filed in state superior court on May 18, Mayor Charles Moreau and four of the city’s five City Council members said Central Falls was insolvent.
Citing revenue shortfalls, cuts to state aid and “collective bargaining agreements and pension obligations it cannot afford,” the city officials asked the court to appoint a permanent receiver.
“In light of its extreme fiscal stress, without the appointment of a receiver, the city is unable ... to bring its operating budget into balance or save its chief retirement plan,” the petition said.
Since his appointment, Savage, a partner at the law firm of Shechtman Halperin Savage LLP, said he has suspended promotions at the fire department to save money, hired consultants to review city agencies for efficiency and suspended “all expenses deemed non-critical.”
He also suspended a controversial program to board up vacant buildings. According to the Providence Journal, Moreau hired a friend and campaign contributor to board up about 200 buildings at a cost of $2 million.
Savage also began a review of the Donald W. Wyatt Detention Center which is operated by the quasi-public Central Falls Detention Facility Corp. The city had budgeted the facility to bring in $1.2 million last year but the revenue didn’t materialize, Savage said.
The facility currently houses about 600 inmates, which generates a roughly break-even revenue, Savage said.
The death of a Chinese immigrant detainee there in 2008 prompted the U.S. Immigration and Customs Enforcement agency to stop using the facility and withdraw 152 detainees, reducing the amount of revenue generated.
The detention facility agency has sold more than $148 million in debt for the center since 1998.
A hearing is scheduled for June 9 regarding the appointment of a permanent receiver.
Cash-strapped Rhode Island cut its aid to municipalities this fiscal year and is poised to cut aid again in the fiscal 2011 budget, which could pass as soon as this week.
Moody’s downgraded the city to B3 from Ba1 last week and it remains on review for possible further rating actions.
“The city is at risk of a payment default on a $4 million general obligation tax anticipation note, payable June 30th, due to insufficient cash flow,” Moody’s said in credit report. “It is not clear whether the city is willing or able to take steps that would ensure sufficient funds are available to repay the maturing note.”
The outcome of the June 9 hearing could prompt further ratings action depending on the “resulting impact on bondholder security, including the potential for economic losses,” Moody’s said.
Standard & Poor’s on May 21 cut the city’s rating to C from BBB-minus.
The state police have been investigating Moreau since March and are working with the Federal Bureau of Investigation, the state attorney general’s office and the U.S. attorney’s office, said police captain David Neill.
He declined to comment on the scope of the investigation or when it would end.