A fire department in Rhode Island has filed for Chapter 9 bankruptcy after failing to reach an agreement with local government over its finances.
The Central Coventry Fire District, one of four such districts in Coventry, RI, is the second such government organization in Rhode Island to file for municipal bankruptcy. The first, the small city of Central Falls, RI, filed in 2011 and is currently recovering from its financial troubles.
The Central Coventry Fire District is estimated to have spent $6.4 million on personnel costs, with just $5.8 million in total revenue.
Rhode Island Gov. Lincoln Chafee explained that the only way to solve the district’s financial issues, short of an agreement with the local firefighters union, would be to file for bankruptcy.
“The cost of the fire district has risen beyond the willingness of the taxpayers to pay, and now bankruptcy is the only means available to restructure the district’s operations and obligations to restore it to fiscal solvency and stability for the future,” Chafee said in a statement.
Under Chapter 9 in the U.S. Bankruptcy Code, municipal governments are allowed to restructure their debt. Chafee said that he would like the process to move quickly and complete with five to six years.
But firefighters within the district are skeptical about the process and concerned about the safety of the community.
David Gorman, president of the IAFF Local 3372 firefighters union in Coventry, pointed out that the district has had to cut its personnel from 52 down to 31; of the five stations that it once had, only two are currently in operation.
Additionally, said Gorman, “Taxpayers will pay hundreds of thousands of dollars in unnecessary legal costs, just like they did in Central Falls.” Among such concerns for the district could be where to find a bankruptcy lawyer that won’t add to the already astronomical costs.
However, the district has already incurred significant costs, with more than $4.4 million owed to its 20 largest unsecured creditors.
Among those debts are $983,020 to the firefighter union for employee compensation; $926,337 for a line of credit; $741,677 to the RI Emergency Management Agency; $628,739 to the state pension system; and $300,000 to the Town of Coventry for a loan.
But the problems with the Central Coventry fire department’s finances have been ongoing. In October 2012, the district was placed under court-appointed receivership; in February 2013, RI Superior Court Judge Brian Stern ordered the district to be liquidated after several unsuccessful attempts to balance its budget, though legislators stopped this process from occurring.
In the past two years, Central Coventry Fire District has overestimated its revenues by 15% of its total budget, leading to a deficit of more than $1.6 million.