PROVIDENCE, R.I. (AP) — A federal judge on Thursday signed off on a state-appointed receiver's recovery plan for Central Falls, paving the way for its exit from municipal bankruptcy and, eventually, the return of the city's elected government.
At a hearing in Providence, U.S. Bankruptcy Judge Frank Bailey approved the plan, which includes deep cuts to pensions and several years of tax hikes. He said he hopes it will allow a healing process to begin after the painful 13-month bankruptcy case that he called a model for Rhode Island and perhaps other municipalities across the U.S. that are struggling with strained budgets and unfunded pension liabilities.
Attorney Theodore Orson, who represents receiver John F. McJennett III, described Central Falls' finances as disastrous in August 2011, when the bankruptcy proceedings began. He said the receiver's office is "thrilled" to return the city to fiscal stability. At the same time, he said, "we do so with a heavy heart" because of the hardships the plan imposes.
"We've been adamant to only make changes that we believe were necessary and equal to the problem — and no more," he said.
There is a 14-day period during which the plan may be appealed. It would take effect 30 days after that.
The city, which has about 19,000 residents in just over one square mile, will remain in receivership even after it exits bankruptcy. State Revenue Director Rosemary Booth Gallogly will determine when the city's elected officials — who were relegated to advisory status after the receiver stepped in — will return, and that will happen only after she feels comfortable they understand and will implement the plan. The budget for the current fiscal year has them coming back in January.
"Our goal is to not be back in this bankruptcy court," said Gallogly, who gave a high-five to one attorney on the receiver's team after Bailey issued his ruling.
The bankruptcy court will maintain jurisdiction over enforcement of the plan, which balances the city's budget for the next five years.
Gov. Lincoln Chafee, an independent, said the plan wouldn't have been possible without cooperation by lawmakers, unions, city workers and retirees.
"All of these people worked tirelessly and made great sacrifices to ensure that Central Falls will once again have the opportunity to become the thriving community it once was," Chafee said in a statement.
The state took over Central Falls in 2010, and McJennett's predecessor as receiver, former Supreme Court Justice Robert G. Flanders Jr., filed for bankruptcy on the city's behalf in August 2011. He cut retirees' pensions by up to 55 percent and negotiated new contracts with labor union leaders on the sidelines of the bankruptcy.
The General Assembly later approved $2.6 million in "transition" payments to retirees to help soften the cuts. Bondholders will not suffer any losses under the plan.
The city also must repay the costs of the receivership, which were an estimated $3.3 million as of June.
Lawrence Goldberg, an attorney for the City Council, whose members have sparred with the receiver, raised questions about the plan, saying it might not be feasible.
But Bailey said he found the financial projections to have been carefully prepared, even if they did not leave a lot of room for unforeseen expenses.
Said Orson: "This is not going to be easy. This plan is very, very tight."