This Is What Happens When a City Goes Bankrupt

The stock market plunged over 500 points last Thursday, but no one seemed very perturbed about it in this tiny factory town. Three days before, Central Falls had filed for a Chapter 9 bankruptcy. These working-class folk see bottoms fall out on a regular basis.

For people used to living one paycheck or unemployment check to another, the number that mattered this day was not the Dow Jones Industrial Average but the temperature, which that summer evening registered a balmy 75. Thus, young people were joyfully playing soccer in a park near the picturesque Blackstone River waterfall that gave this city its name. Older residents gathered on the spacious porches of their ancient Victorians or wooden triple-deckers, drinking beer and conversing in Spanish, Portuguese and sometimes English.

If any U.S. city was destined to go bankrupt, it was this one -- though Vallejo, Calif., beat it by three years. Like Vallejo, ruinous public-employee contracts sent Central Falls over the edge. Unlike the San Francisco suburb, Central Falls has a smaller, less economically diverse tax base. (The median household income is under $33,520 a year.) Its local government at the time of the bankruptcy filing was far more corrupt than Vallejo's.

On this thin tax base, Central Falls faced an annual deficit of $5 million and unfunded pension obligations of $80 million. For a long time, its police and firefighters could retire on full pensions after only 20 years of service. So even though their monthly payouts were not princely, workers could start collecting them -- and free health coverage for life -- while in their 40s. Bankruptcy lets a city tear up union contracts and start over.

Like troubled industrial cities in the Midwest and elsewhere, Central Falls has a proud past evident in grand public buildings and fine old housing stock. Its nickname was Chocolateville, due to being home to one of America's first chocolate factories. A century ago, the mill workers were largely French-Canadian. Nuns taught French as a first language in the parochial schools. Today, artists and such are setting up lofts in some of the old factories.

For decades, Central Falls was the most densely packed city in the United States, cramming over 24,000 people on 1.3 square miles. It lost that distinction in the '70s.

Today, the grand 1910 Adams Memorial Library is open only a few hours a week, thanks to volunteers. The community center has closed. The fire chief, who died in December, has not been replaced. The factory owners say their workers are tops but that if they were starting out today, Central Falls would not be the place.

Being able to erase foolish spending decisions made in more prosperous times is a tempting proposition. Very few cities have tried bankruptcy so far, but many are considering it.

The experience of Vallejo offers some warnings on the dangers of going the bankruptcy route, however. Harrisburg, Pa., and others on the brink, take note.

Vallejo's bankruptcy resulted in a $9.5 million legal bill and a black eye to its reputation. Bankruptcy is a booming announcement that the local government is dysfunctional. For some businesses, having the city's name on the letterhead becomes an embarrassment. A lawyer and real estate broker recently moved out of Central Falls, not because he didn't like the city, but because its name has become a stigma associated with failure.

But like other depressed factory towns, Central Falls retains its reputation as a nice place filled with nice working people. Less than an hour from Boston and loaded with some lovely housing now selling super-cheap, the city will rise. Its next generation, meanwhile, is playing soccer while the sun shines.

COPYRIGHT 2011 THE PROVIDENCE JOURNAL CO.

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