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What Should Be Done When A City Is Bankrupt?

Tuesday, Feb. 22, 2011


The prospect of cities declaring bankruptcy has governors and legislators looking for solutions to rescue insolvent municipalities. In Central Falls, Rhode Island, the answer was to demote the mayor to an advisor, and put a state-appointed receiver in charge of the city. The state now has authority for unlimited oversight.
Last July Mayor Charles D. Moreau was forced to turn in his city car, cell phone, and keys to city hall. His salary went from $71,736 to $26,000, although he has yet to be called for advice. His problems did not begin with the bankruptcy, however. Moreau  is currently under investigation on state and federal corruption charges, but has refused calls for his resignation, insisting he is planning his 2013 re-election campagn.
 A retired state judge is serving as receiver, trying to get the city financially on track. Cedar Falls was the first city in the state to declare insolvency, leaving both a deficit and unfunded retiree benefits. The action caused the city’s debt to plummet to junk bond status, and raised alarm in the town of 19,000.
Cedar Falls is one of thousands of small towns that might be a good candidate for consolidation. While pooling resources and sharing revenues is not always an easy transition, it seems to make sense in a city of only 1.29 square miles.


Tags: bankrupt cities, budget deficits, Cedar Falls Rhode Island

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