Central Falls, Rhode Island, July 15, 2012 - Central Falls, a city of about 19,000 just north of Providence, is both the smallest and most densely populated city in Rhode Island. It also has the distinction of being one of a handful in the US to file for bankruptcy.
Its situation is not unlike Vallejo, CA which filed for bankruptcy in 2010. The difference is Vallejo chose to cut health care and pay as well as city services and payments to bondholders rather than cut worker's and retirees' pensions. Central Falls has no other option. With an $80 million unfunded pension – which is 5 times that of the city’s $17 million budget - and obligation to cover health benefits, there is no where else to draw from to make up the shortfall.
The city’s economy began to decline in the 1970s with the departure of manufacturers, particularly in the textile sector where 11 plants closed between 1997 through 2007. By the 1990’s the state was eventually forced to take over the city’s schools system, including 100 percent of its funding. The Great Recession in 2008 added further pain when the state was forced to drastically cut aid to cities and towns.
Central Falls problem was that spending continued unabated even though its revenues were down sharply. For years its government failed to contribute to its police and firefighters’ pension fund, eventually leaving the fund broke.
The city’s downfall mirrors patterns found in many of the other municipalities near or in Chapter 9, including Stockton, Mammoth Lakes and San Bernardino, CA as well as Harrisburg, PA and Jefferson County, AL, where spending far outpaced shrinking revenues.