The smallest city in the smallest state

August 1, 2011

Central Falls, Rhode Island — the smallest city in the smallest state — filed for bankruptcy today after years of decline. It is the fifth U.S. municipality this year to seek protection from the courts under the bankruptcy law. The Governor of Rhode Island stood with city officials as the bankruptcy process commenced. Reuters quoted him as saying in a statement:

“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.

Central Falls’s population peaked in 1930 and has declined ever since; it currently has only 19,000 inhabitants. The town is extremely poor with median household income of $22,628 and per-capita income of $10,825, according to the 2000 Census. Central Falls, like many hidden American towns, is at the end of municipal row.

The city was placed in state receivership last year as its pension problems spiraled out of control. The twin municipal demons of debt and pension obligations have burdened this community with unsustainable costs as the population and revenue bases shrank. Bloomberg reports:

The pension’s obligations were $48 million greater than the fair value of its assets as of June 30, 2010, according to data compiled by Bloomberg.

Central Falls has about $21 million of outstanding debt, New York-based Moody’s said. The city’s per-capita income is 50 percent of Rhode Island’s, according to the company.

Below in the chart are the largest city expenses. They exceed the city’s revenues and fail to show the expenses for 21 other departments, ranging from the mayor’s office to the library budget.

What could you cut and maintain a viable community? The expenses of the city are already bare-boned. Many of them, such as medical insurance costs, are fixed. AP reports that the shuttered library will reopen three days a week with the help of volunteers. The state receiver has asked the municipal retirees to take a cut in the their pension payments, but the pensions currently average around $24,000 per year. There is no blood in these stones.

What about merging this tiny town with an adjacent municipality? It seems like a logical way to gain an economy of scale. Democratic state Representative Agostinho Silva resists the idea and AP reported him saying:

“I want to make sure the city keeps its identity,” he said. “People are very proud of Central Falls. We know we have our problems. But it’s our city.”

The weak are collapsing in a natural process of renewal. Every state has at least several towns at the end of municipal row. We may think of them as abstract entities but they are places full of people who use the schools, the parks and the jails. These places faded away long ago and now the formal death notices are being posted. What is the way forward?

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