Alabama county may avoid nation's largest municipal bankruptcy
Jefferson County, Ala., leaders approved a tentative settlement with creditors Friday that lawmakers hope will allow them to avoid filing the largest municipal bankruptcy in U.S. history -- though they warned that the agreement is contingent upon many other unsettled matters, including key moves that must now be made by the Alabama Legislature.
"This is just an agreement to agree," County Commissioner Joe Knight said in a telephone interview after the vote. "The devil's in the details, but we still have to get the details hammered out -- and then there will be some legislation required to make this settlement work."
Jefferson County, the state's most populous county and home to the city of Birmingham, has been struggling to find a way to dig out from a $3.14-billion debt incurred after officials borrowed money to fix their broken sewer system, then entered into a number of ill-advised and corruption-laced refinancing deals that backfired in 2007 with the mortgage lending crisis.
The story was a kind of parable of the busted boom times. The complex refinancing deals essentially converted the county's debt from fixed-rate to floating -- the same issue that ruined many homeowners.
The former County Commission president, Larry Langford, and other political insiders were convicted of corruption for their roles in the refinancing deals. JPMorgan Chase, one of the creditors, reached a multimillion-dollar settlement with the Securities and Exchange Commission after being accused of pay-to-play schemes.
Friday's agreement with creditors was approved by the five-member County Commission in a 4-1 vote. It would wipe about $1 billion in debt off the books and refinance the remaining $2 billion, and subject residents to sewer rate increases of 8.2% every year for three years, with smaller increases after that.
That will be unpleasant news for residents who have already seen a 329% sewer rate increase over the last decade, according to George Bowman, who voted against the agreement.
Knight said the deal was an attempt to "do the right thing," and was better than declaring Chapter 9 bankruptcy.
"I think a lot of the citizens are saying, 'Just bankrupt the thing,' but [under a bankruptcy] the debt does not go away. You'll probably get a sewer rate increase even if you bankrupt."
He added: "This is just what we have to deal with," he said. "How do we get Jefferson County out of the ditch and moving forward again?"
-- Richard Fausset in Atlanta
Photo: About two dozen ratepayers, mostly from Birmingham and Bessemer, protest potential sewer rate hikes in front of the Jefferson County Courthouse in August. Jefferson County commissioners have been trying to avoid bankruptcy after incurring a massive debt in an effort to fix their sewer system. Credit: AP / The Birmingham News, Joe Songer