As the recession rages on, bankruptcies are becoming more common than retirement funds. While personal bankruptcies can set a family back financially, imagine the setbacks an entire city would face. The small town of Central Falls, Rhode Island, is facing that very question now, as it has promised almost $80 million in retirement benefits to 214 police officers and firefighters; money that is projected to run out by this upcoming October. If the pension fund is fully exhausted, Central Falls will be the second municipality in U.S. history to run into this financial disaster.
Central Falls is a one square mile city just north of Providence, with a very poor population. At one time, Central Falls was the most densely packed city in the United States. While it lost that distinction in the 1970’s, this small city is filled with mostly immigrants and low income families. According to the Census Bureau’s survey, the median household income is less than $33, 520 a year and the typical single-family house is worth about $130,000.
The biggest surprise is that the police officers and firefighters of the modest Central Falls were offered the retirement benefits rivaling those of larger cities. The benefits included the ability to retire after just 20 years of service, receiving free health care throughout their retirement and the ability to qualify for full disability pension when partially disabled. Not only could each retiree possibly take a major pension cut, but Central Falls had not placed their police and firefighters in Social Security, so many retirees have no additional source of retirement income.
Rhode Island has a lot to worry about, in terms of rippling. When the city of Vallejo, California declared bankruptcy in 2008, they had the state of California to fall back on. For Rhode Island, a small state with only 39 cities and states, one bankrupt municipality will not be as easily absorbed. Not only is Rhode Island a smaller state, but recent tests found that one in four of its cities are in some degree of financial distress. Many of these cities have had trouble in trying to operate their own pension funds, just as Central Falls, instead of participating in state-run pensions. There are 36 local pension funds and 23 have already been designated “at risk.”
Central Falls finally filed Chapter 9 Bankruptcy, and will be negotiating pension contracts as well as cutting spending significantly. So far the city Library is only open a few hours a week, thanks to volunteers and the fire chief, who passed away last December, has not been replaced. Hopefully the bankruptcy will allow Central Falls to get back on track financially.
As an experienced Waco and Killeen bankruptcy attorney, I understand the importance of filing for bankruptcy quickly to get you back on your feet as soon as possible. If you’re considering filing for bankruptcy, please contact an attorney as soon as possible to learn more about your options.