Central Falls, in Rhode Island, is close to emerging from bankruptcy with a plan that hammers its retired municipal employees but leaves bondholders unscathed, in a contrast with other recent U.S. municipal bankruptcies.
On Thursday, a state-appointed receiver overseeing the finances of the tiny, impoverished city is expected to win court approval for a plan that rescues Central Falls from financial collapse and should balance its budget for at least the next five years.
Unlike the approach of some other U.S. states such as California, which left struggling cities to try to fix their finances on their own, the plan for Central Falls reassured the credit markets, but scarred the city.
The smallest city in Rhode Island and the only one ever to file for bankruptcy will emerge with powerless elected officials, property owners facing tax hikes every year and retired public employees irate about having their pensions slashed.
"We understand how truly burdensome these cuts are," said Ted Orson, the attorney for Central Falls' receiver. "But they were the only way for us to do what we were on the way to doing, which is coming out of bankruptcy with a city that is now functional."
The city never missed a payment on its $19 million of currently outstanding general obligation bonds, but that is of little comfort to those who are bearing the cost of the rescue.
"We've been pilfered and beaten down," said Bruce Ogni, president of the Central Falls police retirees organization. "We didn't have the power, the money, to fight it."
The cuts drove home the message to public sector pensioners in other Rhode Island cities that if they didn't agree to renegotiate their retirement benefits, they could be facing even steeper cuts if their city goes bankrupt. In Providence, the state capital, retirees agreed this June to major changes to help the city avert bankruptcy.
Read more: http://www.reuters.com/article/2012/09/04/us-usa-rhodeisland-centralfalls-bankrupt-idUSBRE88300220120904
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