Diary

Rhode Island City Files For Bankruptcy: Another Example of the Stimulus Failure

The stimulus has failed its country one again, showing that it was just a waste of money that didn’t help our country get out of the recession and just added more to the national debt.

Central Falls, Rhode Island has filed for Chapter 9 bankruptcy, which is rare. It is one of many cities and towns around the country facing a financial collapse after the recession.

The bankruptcy filing is a risky and potentially costly move that may take the city out of the U.S. municipal bond market.

It is the smallest city in the Rhode Island. It made the filing as it has an $80 million unfunded pension and retiree health benefit liability that’s almost quadruple its annual budget of $17 million.

The city of just 19,000 people is located six miles from the state capital of Providence. Residents were surprised at the bankruptcy.

“I’d be curious as to who’s going to take it over. Someone has to, but no one wants to,” said Dan Mercure, an auto parts store worker. “It’s going to hurt business, it’s all mom and pop stores here.”

Central Falls has $21 million of outstanding debt, Moody’s said. It has been under state control since July of last year.

State officials have worked hard to avoid a municipal bankruptcy filing, saying that it may “upset” Rhode Island’s other municipalities.

“The current situation is dire and it necessitates decisive steps to put the city back on a path to solid financial footing and future prosperity,” Rhode Island Governor Lincoln Chafee said in a statement.

Wall Street analyst Meredith Whitney predicted mass municipal defaults late last year, but, that prediction has not come yet.

The Central Falls bankruptcy filing is not the start of a “huge nation-wide trend”, said Adam Stern. He is a vice president at Boston-based Breckinridge Capital Advisors, a municipal bond investment firm.

“A bankruptcy filing is sort of an endgame over years and years of economic distress, so it’s not something your typical U.S. town or city is likely to experience anytime soon,” he said.

According to James Spiotto, a municipal bankruptcy expert at the law firm Chapman and Cutler, there have been 624 Chapter 9 bankruptcy filings since 1937, including five last year.

Alabama’s Jefferson County is currently trying to fix the largest municipal bankruptcy in U.S. history. It comes from its $3.2 billion sewer bond crisis.

Pennsylvania’s capital, Harrisburg, which has about $300 million incinerator debt, is also considering bankruptcy. Harrisburg’s bankruptcy would really show that our nation is in trouble, as it is a large city.

Those cases have leaded some people to obtain a pessimistic view on future municipal bankruptcies in the United States.

The case at hand in Central Falls, Rhode Island is another example of the stimulus package being just money wasted and more money to add to our national debt.

The stimulus’ failure, the bankruptcy of Central Falls and Jefferson County, Alabama, and the potential bankruptcy of Harrisburg, Pennsylvania, a large city, shows that this nation may still be far from getting out of this recession.

(Credit to Reuters for the info.)