Rhodes Island gives East Providence back full control of city

March 28 Thu Mar 28, 2013 6:18pm EDT

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March 28 (Reuters) - Rhode Island is handing control of East Providence back to local elected officials after the nearly insolvent city improved its finances under the 15-month watch of a budget commission, state officials said on Thursday.

The state-appointed commission, established in December 2011, helped East Providence craft a recovery plan that was modeled on credit rating agency recommendations, according to city budget documents.

Unlike some other states, Rhode Island has strict laws that give state officials a clear path of intervention in fiscally distressed local governments.

In the tiny Rhode Island city of Central Falls, state intervention led to bankruptcy in August 2011. Only 13 months later, the city emerged, leaving bondholders unscathed but slashing retirees' pension payments in half.

The East Providence commission will provisionally hand back the reins to the city manager, city council and school officials until the state makes a final determination that the commission is no longer needed, Governor Lincoln Chafee and state Revenue Director Rosemary Booth Gallogly said in a statement.

With the help of the commission, East Providence, a city of about 47,000 residents, has eliminated a multi-year operational deficit, reduced short-term borrowing and is paying its full annual contribution to its pension fund, the statement said.

City division budgets were cut by 20 percent on average, it said.

Three of the five commission members were appointed by the state. The other two were City Council President Jim Briden and City Manager Peter Graczykowski.

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