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Rhode Island City Files For Bankruptcy

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The beleaguered city of Central Falls, R.I., is filing for bankruptcy protection. The city of 19,000 failed to put aside enough money to pay the pensions of municipal employees, and now the debt is simply too large for the residents to manage.

MELISSA BLOCK, host: This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

MICHELE NORRIS, host: And I'm Michele Norris.

Central Falls, Rhode Island, has only 19,000 residents, but it's more than $21 million in debt. Its credit rating was downgraded earlier this summer. And this morning, the city joined a short list of municipalities to seek shelter in federal bankruptcy. From member station WRNI, Catherine Welch reports.

CATHERINE WELCH: This morning, in a city council chambers jam-packed with media, retired police and firefighters and elected officials, Central Falls receiver Robert Flanders Jr. delivered the news.

ROBERT FLANDERS JR.: The city of Central Falls will be filing for relief under Chapter 9 of the Federal Bankruptcy Code.

WELCH: This wasn't a surprise announcement. The city has been under receivership for more than a year. It tried to raise cash by hiking taxes by 19 percent, but the poor residents in this tiny city couldn't afford them. Then last week, when concession talks with police and fire unions stalled, that pretty much sealed the deal. Even though Central Falls is the only city in Rhode Island filing for bankruptcy, Flanders hopes the process will go quickly.

JR.: There aren't a lot of signposts. Municipal bankruptcies are very rare. There hadn't been many, and the precedents are few and far between. But the law is there to help cities that find themselves in the straits that Central Falls does.

WELCH: To get back on track, he's asked a federal bankruptcy judge to cut pension checks for 141 retirees by as much as 50 percent, and he's requested that the judge rip up bargaining agreements with the police, fire and municipal workers' unions.

JR.: Although this will sound counterintuitive to some, today marks the beginning of a much brighter future for Central Falls.

WELCH: Outside city hall, Rose Marie Canavan says she wasn't surprise.

ROSE MARIE CANAVAN: It was coming, and nobody wanted to see it.

WELCH: The receiver blames the bankruptcy on years of poor financial planning. Canavan agrees. She served on the city council a decade ago and says back then, the municipal pensions were underfunded.

CANAVAN: I think it's mismanagement of money that goes back way back, and I'm sure that whoever was in office, they had to see it. It's there.

WELCH: Going forward, the goal is to minimize costs and harm and get Central Falls out of bankruptcy in six months. But University of Rhode Island business professor Edward Mazze says the damage is already done.

EDWARD MAZZE: The real impact is that Central Falls is now under a very, very thick cloud, and Rhode Island, which has been under a cloud, the cloud just got thicker.

WELCH: Combined with high unemployment and state budget problems, Mazze says Central Falls' bankruptcy will make it even harder to attract new business and investment to Rhode Island. For NPR News, I'm Catherine Welch in Providence, Rhode Island.

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