It’s looking like the capital and largest city of Rhode Island, Providence will be looking into filing bankruptcy because of a budget deficit. A state appointed receiver, Robert Flanders said there is no way around it just as it wasn’t for nearby Central Falls, Rhode Island.
The city of Providence, like many others in the US, is facing unsustainable employment costs that include retiree benefits that are out of control. The Providence Mayor, Angel Taveras has been putting pressure on nonprofit organizations and on Brown University for help in closing a $20 million budget gap. The governor of Rhode Island is also pushing lawmakers to come up with measures that will help cities do something about these unsustainable pensions.
Although, a bankruptcy filing is not the preferred option to get out of debt, it is probably Providence’s only option. The mayor stated on Judge Flanders remark, “I respectively disagree with Judge Flanders that bankruptcy is unavoidable.”
It seems with so many cities in financial troubles filing bankruptcy under Chapter 9 will be very common in the near future. Since 1937, 635 municipalities have entered into a bankruptcy filing under Chapter 9 according to James Spiotto, and a bankruptcy attorney from Chicago. The reason there hasn’t been more is because some state laws prohibit cities from filing bankruptcy.
Most legal analysts believe that a city should avoid a bankruptcy filing at all costs because the government has the means to deal with debt and budget issues. The only one that wins in a bankruptcy filing of a city is the bankruptcy attorney representing them.