Bankrupt Central Falls, RI, a “City with a Bright Future”

Bloomburg summarizes the bankruptcy filing of Central Falls, Rhode Island following the the failure of local law enforcement, firefighters, and city retirees to accept retirement benefit concessions. It marks the fifth such municipal bankruptcy this year.

The city’s website still maintains that Central Falls is a “City with a Bright Future,” available here if you can believe it. Just after the heading is a welcome to the city’s bankruptcy receiver. Demographically, the city is home to some of the poorest residents of Rhode Island and has a median income of $22,628 according to the receiver’s report.

The city is termed “distressed” by the state because of has one of the highest property tax burdens relative to the wealth of its taxpayers. This tax burden is eye popping: after a 2009 residential property reevaluation, property values were found to have declined by 44% from their previous valuation date, 2006. Because the reevaluation is required to be revenue neutral, the residential tax rate in the city increased from $10.78 per $1,000 of assessed value to $19.22 of assessed value, a 78% increase.

The receiver’s report, which is available in PDF format here, notes that a “culture of government [. . .] has allowed this fiscal crisis to occur without adjusting revenues or expenses or engaging the community in a dialogue about the financial and other challenges the City faces.” The city’s unfunded liability for its pension and retiree health benefits plan amounts to $80 million. The receiver notes that the city could fund this liability if it does not fund any other service of program, including debt service, for five years.

In all, the report is a sobering reminder of the crisis faced by our municipalities. In his conclusion, the receiver notes that the system of government in Central Falls “insulates its elected officials from public accountability and diminishes citizen involvement.” The drastic cuts to the city’s pension plans will now be made more severe by legal wrangling in the courts and the appointment of a necessary, but expensive, receivership.

More from Walter Olson at Cato:

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