ECONOMIC INDICATORS

Bankruptcy is not the answer for R.I. cities, towns

COURTESY RHODE ISLAND PUBLIC EXPENDITURE COUNCIL
TOWNS AND CITIES have seen direct aid from the state (not including education funding) fall 72.6 percent from fiscal 2008 to fiscal 2013.
COURTESY RIPEC
CHAPTER 9 municipal bankrupcy will not solve the fiscal problems of Rhode Island’s struggling cities and towns according to the Rhode Island Public Expenditure Council. The above graph shows the change in Chapter 9 filings across the country since 1980. For a larger version, click HERE.
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Posted 4/2/12

PROVIDENCE – Municipal bankruptcy will not solve the fiscal problems of Rhode Island’s struggling cities and towns, the Rhode Island Public Expenditure Council concludes in a report released Monday.

The report suggests that the state take steps to avoid local defaults wherever possible.

The report, which catalogues recent municipal bankruptcy filings across the country, stops short of recommending passage of Gov. Lincoln D. Chafee’s proposed package of municipal relief bills, but suggests that added “flexibility” for cities and towns would be valuable.

Although bankruptcy may be inevitable in some cases, “enabling legislation that provides relief from state mandates may be the most effective means of addressing municipal fiscal stress given the current economic climate,” the RIPEC report said.

“Ultimately, communities must be granted increased flexibility to rework their financial obligations including, but not limited to, those relating to organizational structures and personnel,” the report continued. “In turn, these communities must take a proactive approach to restructuring their finances before they become insolvent.”

Among the direct immediate consequences of widespread municipal bankruptcy filings in the state, RIPEC points to higher borrowing costs from bond rating downgrades and added legal costs to both the state and municipalities connected with bankruptcies.

In the long term, the report says bankruptcy could also deter business investment and home purchases in communities perceived to be poorly managed and likely to see reduced public services, although those consequences are more difficult to quantify.

To view the whole report, visit www.ripec.org.

2 comments on this story | Add your comment
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Jim_Donahue

Chapter 9 allows municipalities to do just what PIPEC describes and even better the people that have been in charge of bankrupting the munis have no say in how its done - the receiver controls things not the elected who are in the Unions back pocket.

Monday, April 2, 2012 | Report this
1Smith

This report only furthers the stigma of bankruptcy. Giving the municipalities "flexibility" is a start but not when they're in the center of a Category 5. Chapter 9 allows for maximum flexibility through a reorganization process and if planned accordingly and thoughtfully with priorities spelled out, a city (Providence!) can exit bankruptcy much stronger than when it entered. Having a strong fiscal house will make businesses stay and attract others to invest and the bond ratings will eventually reflect that.

Monday, April 2, 2012 | Report this
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