Alabama county files largest municipal bankruptcy in U.S. history
Leaders of debt-hobbled Jefferson County in Alabama voted Friday to file for bankruptcy -- the largest municipal bankruptcy in U.S. history.
As recently as September, county officials had approved a tentative settlement with creditors in hopes of avoiding the need for Chapter 9 protection. “This is just an agreement to agree,” Jefferson County Commissioner Joe Knight said at the time. “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.”
But nailing down those details proved elusive.
By a 4-1 vote Friday, the County Commission authorized the Chapter 9 filing.
“The county has negotiated extensively and in good faith with its creditors and their representatives about restructuring the county’s debts out-of-court,” commission President David Carrington said in a statement. “Despite the county’s best efforts, those negotiations have not produced a deal that fairly treats the county and its citizens, and there is no reason to believe that further out-of-court negotiations will lead to a fair, acceptable result.”
Carrington signed the bankruptcy papers Wednesday afternoon.
Jefferson County, the state's most populous, is burdened with more than $4 billion in debt. The bills began to mount in recent years after officials borrowed to fix a broken sewer system, and then entered into some ill-advised and corruption-laced refinancing deals that backfired with the mortgage lending crisis.
In a statement, the county alluded to outside pressures that compounded the county’s own missteps: “The county’s Chapter 9 filing follows a series of significant and unprecedented financial setbacks to the county. In 2008, the county’s credit rating was downgraded for reasons outside of its control, including the downgrading of the credit ratings of the companies that insured the county’s long-term debt.”
In response to its financial troubles, the county has laid off more than 550 workers and severely cut county programs. Officials said the bankruptcy filing would not further affect county services.
Previously, the largest municipal bankruptcy in U.S. history was filed by Orange County, Calif., in 1994 when it sought protection after Wall Street investors insisted the county repay $1.2 billion in loans to its troubled investment pool.
-- Steve Padilla
Photo: Jefferson County Commission President David Carrington signs the Chapter 9 bankruptcy papers in his office at the Jefferson County Courthouse in Birmingham, Ala.. Credit: Joe Songer/ Birmingham News