Rhode Island's Central Coventry Fire District has filed for Chapter 9 bankruptcy..
State-appointed lawyer Robert Flanders and the receiver for the fire district, Steven Hartford, filed the petition in the U.S. Bankruptcy Court for the District of Rhode Island in Providence, Gov. Lincoln Chafee announced late Tuesday.
The district could not reach the necessary agreements with its firefighters union nor could it restructure other debts during 18 months of negotiations with state officials. According to the court filing, projected personnel expenses are $6.4 million for fiscal 2015, while revenues project to only $5.8 million.
"Unfortunately, the district's financial difficulties are simply too severe to remedy through the limited powers of a state receivership," attorneys said in the filing.
According to bankruptcy expert and attorney James Spiotto, 189 of 317 Chapter 9 filings since 1954 have involved small, special tax, utility or essential-service districts. Most, as is the case in Coventry, do not issue municipal bonds.
"It's consistently in the 60% range," Spiotto, a managing director with Chapman Strategic Advisors LLC in Chicago, said in an interview Wednesday.
Central Coventry "does fit the pattern," Spiotto said.
Coventry, 18 miles southwest of capital city Providence, has four independent fire districts and does not control the fire districts in any way.
A state court special master, Richard Land, had been supervising the district since October 2012. Land has also served as court-appointed receiver for defunct video-game company 38 Studios. Chafee appointed Hartford as receiver in May after consulting with other top state officials, including revenue Director Rosemary Booth Gallogly.
According to court documents, the district overestimated its revenue and underestimated its budget resulting in a cumulative operating deficit of more than $1.5 million before the intervention.
"Yet it still leased new equipment and hired new employees - even after the then-existing board was aware of the district's revenue shortfall," said the bankruptcy filing. "The district also faces oppressive future liabilities stemming from its collective bargaining agreement with the union."
Chafee, whose term will end Jan. 6, has instructed his administration to continue negotiations. While acknowledging variables, Chafee said the state hopes to conclude bankruptcy "as soon as possible" and obtain a confirmed plan to provide the district with a balanced budget for five to six years.
"Bankruptcy is the only tool left to us to finally set the fiscal ship of the Central Coventry Fire District on the right course," Chafee said in a statement.
He has discussed the matter at length with Gov.-elect Gina Raimondo.
"The length does vary," said Spiotto. "It's a question of assembling everybody, the vendors, residents and employees. It's not as complicated as, say, Detroit."
Detroit two weeks ago formally exited bankruptcy, one month after Judge Steven Rhodes approved a recovery plan. The Motor City's July 2013 filing marked the largest Chapter 9 to date. At the time it reported about $18 billion of debt.
According to bankruptcy documents, the Coventry district's largest creditor is Local 3372 of the International Association of Fire Fighters, which listed $983,020. Following are Centreville Savings bank of West Warwick, R.I. ($926,337), Rhode Island Emergency Management Agency ($741,678), and the Employees' Retirement System of Rhode Island ($628.739).
Flanders, a retired state Superior Court justice and a partner at Providence firm Hinckley, Allen & Snyder LLP, was the receiver in Rhode Island's only other municipal bankruptcy, that of Central Falls. The 19,000-population city filed under Chapter 9 in August 2011 and exited 13 months later.
"Rhode Island has worked through this before. Rosemary and others have done a great job addressing the problems," said Spiotto.
A receiver, unlike the five-member budget commission that has overseen some ailing municipalities in Rhode Island, can take a fire district into Chapter 9. The state legislature this year amended the receivership law to include such districts.
Central Coventry's problems have intensified debate about magnified debate about duplication and accountability within Rhode Island's independent fire districts.
Last year, the Rhode Island Public Expenditure Council reported that the state has 44 such districts spread across 15 of the state's 39 municipalities.
East Greenwich merged its fire district into the town last year, dissolving an entity that dated to the John Adams presidency.
Local 3372 of the International Association of Fire Fighters said politics, not public safety, is driving liquidation and consolidation attempts.
"Experts have testified [that these moves] will create an unnecessary public safety crisis, and could cost taxpayers millions of dollars," the union said on its website.