City’s bankruptcy plan protects bondholders
Central Falls, R.I., which filed for bankruptcy 13 months ago, is set to exit federal court protection this week with a plan that could lead to restoring the city’s credit but spells bad news for city employees and retirees. The city received financial and political support from state officials for a debt relief plan that keeps bondholders whole while cutting city workers and retiree pensions, according to Bloomberg News.
The plan is scheduled for review in federal bankruptcy court in Providence Sept. 6. It does not impose losses on bondholders and may let them recover legal fees, while also letting investors put liens on city tax revenue.
Under the plan, about 50 city jobs will be cut and pensions will be cut as much as 55 percent for 133 municipal retirees. The state provided $2.6 million to help cushion the pension cuts, phasing them in over five years. Retirees also must pay 20 percent of their health care costs until they qualify for Medicare at age 65.
The proposal includes annual 4 percent property tax increases through 2017, according to Bloomberg. The city of about 19,400 residents is more than $27 million in debt.
The Central Falls plan to put bondholders first, backed by Gov. Lincoln Chafee and state lawmakers, differs from other local governments currently in bankruptcy. State lawmakers refused to let Jefferson County, Ala., the nation’s largest local government bankruptcy, raise taxes. In Stockton, Calif., the largest U.S. city to file bankruptcy, city officials say they will seek court approval for a plan that includes cuts to all creditors, including bondholders.
Financial experts said protecting bondholders would allow Central Falls eventually to issue bonds and borrow money. Moody’s Investor Service in June said the city’s credit rating might be raised.
But city retirees and current employees, already working under a new contract with lower benefits, will have to tighten their belts. “I will never be able to retire,” Don Cardin, 47, a former fire department battalion chief, told Bloomberg. His monthly pension is set to drop from $2,800 to $1,250 in five years.