R.I. city seeks bankruptcy

And now troubled Central Falls has fallen into bankruptcy.

With the community battered by debt and years of financial problems, Robert Flanders Jr., the receiver in charge of city government and a former state Supreme Court justice, sought bankruptcy protection for Central Falls yesterday, plunging the city into a little-used segment of financial law reserved for government entities that have wholly failed.

“The current situation is dire,’’ said Governor Lincoln Chafee, announcing the bankruptcy filing yesterday, “and it necessitates decisive steps to put the city back on the path to solid financial footing and future prosperity.’’

The city is on pace to finish the fiscal year next June 30 with a $5.6 million deficit, on projected revenues of $16.4 million and more than $22 million in expenses, according to court filings.

The rare bankruptcy of a municipality is a black eye for the Ocean State, and the fallout could undermine confidence in government bonds in Rhode Island, which would increase the cost of borrowing money, putting a further burden on taxpayers.

“What this says to bond investors is the state is not willing to step in and prevent a bankruptcy’’ with an infusion of money, said New York bond lawyer Brian Fraser, of Richards Kibbe & Orbe. “Investors can no longer count on that backstop.’’

The city of 19,000 people has fallen on very hard times, made worse by a small commercial tax base and little industry. It was once a center for textiles, metal workers, chocolate makers, and other manufactured products, including Play-Doh, the children’s clay that was made here by Hasbro Inc. until an all-too familiar announcement of a plant closure and layoffs in the 1990s.

Today, brick mill buildings stand as reminders of a more prosperous past. The community’s best-known employers now include the Wyatt Detention Facility, which houses gangsters, illegal immigrants, and, as she awaits trial, Catherine Greig, the girlfriend of James “Whitey’’ Bulger, the Boston mobster captured in June.

Municipal bankruptcies, under what’s called Chapter 9 filings, are “extremely rare,’’ Fraser said.