Providence Journal: Pew Study Looks at How R.I. Handled Bankruptcy of Central Falls
With an increasing number of the nation’s cities drifting uncomfortably close to bankruptcy — and Detroit declaring it — municipal officials and students of government around the country have been looking at how the Rhode Island state government dealt with the Central Falls bankruptcy.
The latest example is “The State Role in Local Government Distress,” a study released Tuesday by the Pew Charitable Trusts in Washington, D.C. Pew looked at a range of approaches, focusing on seven states, from what it called “hands-off” California to “hands-on” Rhode Island.
The study didn’t recommend specific actions, saying each state needed to develop policies that fit its history and political culture, but it did note that Central Falls came out of bankruptcy in 13 months, rather than the four years it took Vallejo, Calif., to emerge.
It cited early-intervention states, such as North Carolina, where a nine-member state commission monitors every municipality in the state, and can, if things get bad enough, step in and take over. The system has been in place since 1931, the report said, and the state has never had a municipal bankruptcy.
On the other end of the spectrum is California, where, since the 1800s, cities have ferociously resisted any state government control. That’s led to a system where the state helps finance school districts and county governments, but when its cities become financially stressed, such as Vallejo or Stockton, the best they can hope from the state is sympathy.
“Rhode Island, by contrast, responded aggressively when Central Falls filed for bankruptcy protection in 2011,” the Pew report said. It recounted the Chafee administration’s appointment of state receivers who took over city government, cut budgets, raised taxes and gutted pensions while the General Assembly guaranteed investors their bonds would be paid in full.
“The state’s action was a reason for Central Falls’ exit from bankruptcy last year after only 13 months,” the report said, “the shortest of several recent high profile municipal bankruptcies.”
Kil Huh, Pew’s director of state and local fiscal health project, said Rhode Island was the only state to immunize bondholders from a bankruptcy. He said it may have been done because the state is so small and the effects of bond default could have had a bigger impact on other cities’ bond ratings than would have happened in a larger state.
Read the full article at ProvidenceJournal.com.
- States' Fiscal Health