The capital of Rhode Island, Providence, is facing what some officials are describing as an inevitable Chapter 9 bankruptcy.
City officials are trying to engage area non-profits, such as Brown University, to help fill the city’s $20 million budget gap. But the recent drop of credit ratings makes borrowing more expensive, and the continuing escalation of pension costs have pushed the city towards insolvency.
The city sees the Chapter 9 option as a less preferable path, but neighboring Central Falls experienced some success after they entered bankruptcy proceedings. They cut the city staff by 32%, cut pensions in half, and continued servicing debts while restructuring finances.
While some are spelling doom, Providence Mayor Angel Tavares says that the city has already taken steps to improve its financial conditions and the Chapter 9 filing is not inevitable.
Providence, Rhode Island’s capital and biggest city, probably will seek bankruptcy court protection to deal with a budget deficit, Robert Flanders, the state- appointed receiver for nearby Central Falls, said today.
“I don’t see how they can get out of it without going there,” said Flanders, a former state Supreme Court justice and a partner at Hinckley, Allen & Snyder LLP. He put Central Falls into bankruptcy in August and has used the city’s legal status to tear up contracts with city workers and cut pension benefits.
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