By Steven Church and Steve Ludsin
(Updated, Sept. 7, 9 a.m.)
NEW YORK - Central Falls, the first city in Rhode Island’s 222-year history to go bankrupt, won court permission for an exit plan that fully repays bondholders while cutting worker pensions.
Under the plan, bondholders also have the opportunity to get back the money they spend on legal fees related to the case.
The city’s payroll will fall to 121 jobs from 174 in May, according to Rosemary Booth Gallogly, the state’s revenue director, who oversaw negotiations with creditors. Pensions will be cut as much as 55 percent for 133 municipal retirees, while none will get less than $10,000 a year, according to court documents. They will also be required to pay 20 percent of their health-care costs until they turn 65 and become eligible for the federal Medicare program.
During its 13 months in bankruptcy, the city moved from “pain to a sincere hope,” U.S. Bankruptcy Judge Frank Bailey said yesterday at a court hearing in Providence, Rhode Island. The case was the quickest municipal debt adjustment for a city in U.S. history, he said.
Retirees accepted the proposed cuts after the state promised to supplement pensions for five years. General unsecured creditors will be paid a maximum of 45 percent over six years from a $600,000 fund. The city lacked revenue to pay more “while maintaining an adequate level of municipal services such as the provision of fire and police protection,” according to its disclosure materials.
The city of 18,000 was guided through bankruptcy by a receiver initially appointed before the Chapter 9 filing on Aug. 1, 2011. Bailey said it’s up to the state to decide whether the receiver could be discharged on completion of the case.
Last year, Gov. Lincoln D. Chafee, an independent, ensured that investors holding $27 million of Central Falls debt would be protected when he signed a law giving them a lien on tax and general revenue.
Chafee yesterday praised the city’s bankruptcy-exit plan.
“None of this would have been possible without collaboration on the part of the legislature, the unions, the city employees and the retirees,” he said in a statement.