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R.I. city seeks bankruptcy

Central Falls gives in to social, financial pressure

Former state representative Joe Faria reacted to news of Central Fall’s bankruptcy filing yesterday. The struggling Rhode Island city’s government was taken over by a state receiver last year. Former state representative Joe Faria reacted to news of Central Fall’s bankruptcy filing yesterday. The struggling Rhode Island city’s government was taken over by a state receiver last year. (Stew Milne/Associated Press)
By Mark Arsenault and Laura J. Nelson
Globe Staff | Globe Correspondent / August 2, 2011

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CENTRAL FALLS, R.I. - This tiny municipality has for years been a microcosm of big-city problems, with a myriad of financial and social ills concentrated in a community barely bigger than 1 square mile.

The City of Central Falls suffers from Rhode Island’s highest unemployment rate, about 15 percent, and the state’s lowest per capita income. Its underperforming high school made national headlines last year when the entire faculty was fired, then rehired. A year ago, city government was taken over by a state receiver, turning local elected officials into advisers.

And now troubled Central Falls has fallen into bankruptcy.

With the community battered by debt and years of financial problems, Robert Flanders Jr., the receiver in charge of city government and a former state Supreme Court justice, sought bankruptcy protection for Central Falls yesterday, plunging the city into a little-used segment of financial law reserved for government entities that have wholly failed.

“The current situation is dire,’’ said Governor Lincoln Chafee, announcing the bankruptcy filing yesterday, “and it necessitates decisive steps to put the city back on the path to solid financial footing and future prosperity.’’

The city is on pace to finish the fiscal year next June 30 with a $5.6 million deficit, on projected revenues of $16.4 million and more than $22 million in expenses, according to court filings.

The rare bankruptcy of a municipality is a black eye for the Ocean State, and the fallout could undermine confidence in government bonds in Rhode Island, which would increase the cost of borrowing money, putting a further burden on taxpayers.

“What this says to bond investors is the state is not willing to step in and prevent a bankruptcy’’ with an infusion of money, said New York bond lawyer Brian Fraser, of Richards Kibbe & Orbe. “Investors can no longer count on that backstop.’’

The city of 19,000 people has fallen on very hard times, made worse by a small commercial tax base and little industry. It was once a center for textiles, metal workers, chocolate makers, and other manufactured products, including Play-Doh, the children’s clay that was made here by Hasbro Inc. until an all-too familiar announcement of a plant closure and layoffs in the 1990s.

Today, brick mill buildings stand as reminders of a more prosperous past. The community’s best-known employers now include the Wyatt Detention Facility, which houses gangsters, illegal immigrants, and, as she awaits trial, Catherine Greig, the girlfriend of James “Whitey’’ Bulger, the Boston mobster captured in June.

Municipal bankruptcies, under what’s called Chapter 9 filings, are “extremely rare,’’ Fraser said.

Orange Country, Calif., underwent a bankruptcy in the 1990s that was largely considered a success, he said. The City of Vallejo, Calif., on the other hand, filed for bankruptcy in 2008 and has not yet emerged, despite millions spent on legal fees.

“The jury is still out on how effective Chapter 9 is in solving very deeply embedded financial problems like those in Central Falls,’’ Fraser said.

Bankruptcy will give the city a breathing spell from paying bills so it can reorganize and restructure.

The filing follows more than a year of stringent cutbacks, including eliminating health benefits for elected officials and closing the town’s library and community center.

“We’re running short-handed here and morale is already an issue,’’ said John Garvey, acting chief of the Central Falls Fire Department. “This weighs very heavily on me and on us.’’

The department, which handles about 5,000 calls a year, lost 10 percent of its staff in the last year and can’t handle more layoffs without risking public safety, Garvey said.

The bankruptcy also comes after state officials failed to reach a deal for union concessions by police, fire, and municipal employees; they also failed to persuade retirees to accept lower pensions and benefits.

Pension funds have been chronically shorted by local officials, leaving the city tens of millions of dollars short of what actuaries predict it will owe its retirees.

Central Falls has 141 people drawing pensions; it is not uncommon for retirees, who can draw pensions after 20 years of service, to receive checks for 40 or 50 years, Garvey said.

Flanders has filed a motion seeking to nullify contracts with the unions, with the intent to force city workers to accept concessions or face the possibility their contracts could be torn up by the court.

Joseph Nield, head of the Department of Public Works, said the bankruptcy is shocking to public employees who opted for civic jobs with the lure of stable benefits, rather than white-collar careers.

“When the city told them, ‘You may not make a lot of money, but you’ll always be taken care of,’ they swallowed it, and they’ve continued to believe that,’’ Nield said yesterday. “But now there’s a lot of concern in the pipeline, because my guys know they could be replaced at any minute if they don’t have a contract.’’

Central Falls residents said they are burdened by higher taxes and frustrated by their city’s inability to solve its budget crisis.

But, they said, the time for being embarrassed about bankruptcy has long since passed.

“This didn’t happen over weeks, or even months,’’ said Victor Turenne, 80, a lifelong resident, as he left JA Landry Hardware on Broad Street. “At this point, what can we really do?’’

Behind the cash register inside, Janine Vaccaro, 56, keeps a framed picture of a bustling Broad Street in the early 1900s, when the city was still a boom town.

“We’re worried what the future holds, for our business and for the city,’’ Vaccaro said, adding that a significant portion of the hardware store’s business comes from City Hall. “So much mismanagement - we’re all losing out.’’

Officials cited the city’s proud identity and its slogan - “A City with a Bright Future’’ - but residents waiting for a bus near City Hall said the identity has been destroyed by financial problems and cutbacks.

“At this point, I don’t see what’s stopping us from just becoming a part of Pawtucket,’’ Joe Elliott, 48, referring to the municipality next door. “It’s not like there’s much here we should want to salvage.’’

Mark Arsenault can be reached at marsenault@globe.com.