Rhode Island City Starts Fiscal Year In The Red

STEVE INSKEEP, host:

And now let's talk about the financial troubles of American cities. Central Falls, Rhode Island could be headed to bankruptcy. The town handed its books to a receiver last year in an effort to avoid bankruptcy. But as Catherine Welch of member station WRNI reports, the town still ended last year $2 million in the hole and it is starting the new fiscal year even deeper in trouble.

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CATHERINE WELCH: Pat Szlashtas barbershop sits on one of the few streets in Central Falls that actually has business traffic. His father opened the barbershop in 1947 and Szlashtas been running it for the last 50 years. Cooling off near the air conditioner, he remembers when bakeries and specialty shops lined the street, before the pawn shops and nail salons took over.

Mr. PAT SZLASHTA (Owner, Pat's Barber Shop): When I was born in this city up until a few years ago, if you lived here you did not have to go out of this city to do any type of shopping.

WELCH: Back then, Central Falls was quiet, everyone knew each other, and few locked their doors. But the citys fallen on hard times and the average household income is now just $22,000. Seeking to turn things around, Szlashta won a seat on the Central Falls city council. But six months after the mayor turned the keys over to a receiver last year, city council was banned from meeting or doing business.

Mr. SZLASHTA: All we can do is keep our fingers crossed, hope the council gets back to work and the receiver lets the council run the city.

WELCH: So how did Central Falls get this way? There were some questionable transactions between politicians and their friends. And when the state-appointed receiver combed the citys books he found no evidence of any financial planning in last several years. So to raise cash, he hiked property taxes by a whopping 19 percent, which few could afford.

In October Central Falls is expected to run out of money to pay its police and fire pension obligations. Retired firefighter Howard Baskins depends on those checks.

Mr. HOWARD BASKINS (Retired Firefighter): My rent's $1,000 a month, its more than half of my pension. Without no pay what do I do? Where do I go?

WELCH: Central Falls hasnt fully funded the pension in six years. Now the citys 19,000 residents owe an astonishing $80 million. The citys receiver, Robert Flanders, is negotiating with workers, unions and pensioners. In a quiet conference room in the state capitol, Flanders says pensions now account for half of the citys budget deficit.

Mr. ROBERT FLANDERS (Receiver, Central Falls, Rhode Island): With a $17 million budget and a $5 million almost budget shortfall or a structural deficit, we dont have any options except to do whatever we can to raise revenue and whatever we can to cut expenses.

WELCH: But Howard Baskins doesnt want to talk about concessions. While digging through his files for his pension papers, he gets upset just thinking about it.

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Mr. BASKINS: We paid whatever they said and we didnt question it. We didnt misappropriate our funds, they did it to themselves. But why should we suffer? We held up our end of the bargain.

WELCH: Earlier this year, Flanders asked Rhode Island for a cash infusion, which it refused. That sparked the bond rating agency Moodys to downgrade Central Falls to near the bottom of junk bond status and teetering on the edge of bankruptcy.

Professor EDWARD MAZZE (Business Administration, University of Rhode Island): Automatically, the publicity will create a dark cloud over the entire state.

WELCH: Thats University of Rhode Island business Professor Edward Mazze, who says a Central Falls bankruptcy will hurt the entire states economy.

Dr. MAZZE: Which means that, you know, over time, we will be paying more for money we borrow and some of that bonds may actually become junk bonds.

WELCH: Last month, Robert Flanders fired a dozen city employees and shut down the library and senior center. Professor Mazze says that may nudge the unions to the bargaining table. But if theres no deal soon, Central Falls will likely declare bankruptcy this summer.

For NPR News, Im Catherine Welch.

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