Alabama governor criticizes county's massive bankruptcy filing

Robert Bentley
The decision by Jefferson County, Ala., commissioners to forgo a proposed settlement with creditors and file for the largest municipal bankruptcy in American history is not sitting well with some of the players in the drama, including Gov. Robert Bentley.

But county leaders apparently thought they had no other choice.

"Bankruptcy is a measure of last resort," Commissioner Joe Knight said of the Chapter 9 filing to help deal with the county's $4 billion-plus debt load, according to the Birmingham News. "In my mind, we have reached the last resort."

On Wednesday, Bentley said he feared the decision by the state's most populous county would jack up borrowing costs for other municipal governments in Alabama.

"I am extremely disappointed in the action that was taken by the commission today," the governor told the paper. "We feel everything was put into place to save the county from bankruptcy and to help the ratepayers and keep this embarrassing situation from occurring in the state of Alabama.

"What we're going to do now is to try to control the damage to our state."

The disaster in Jefferson County, home to the city of Birmingham, was caused in great part by the refinancing of a sewer system upgrade that relied on exotic interest-rate swaps. Those swaps went awry in the 2007 mortgage industry crisis, resulting in soaring interest rates and payments the county couldn't make.

The deals were also hatched in a culture of corruption. Democrat Larry Langford, the former commission president, was later convicted on corruption charges, and creditor JPMorgan Chase reached a multimillion-dollar settlement with the Securities and Exchange Commission for allegedly engaging in pay-to-play schemes.

At the same time, the county faced a separate disaster when an occupational tax it relied on was declared unconstitutional by the state court system, blowing a $66-million hole in the budget.

A new county tax required the blessing of the state legislature, but a plan for raising new revenue was effectively blocked by state Sen. Scott Beason.

Beason, a Republican from the Jefferson County suburb of Gardendale, has emerged as a central figure in Alabama politics of late.

He was a sponsor of the state's strict anti-illegal immigration legislation, and he was caught on tape referring to black people as "aborigines," a remark for which he apologized in September. At the time, Beason was wearing a wire for the FBI as part of a probe into corruption in the gambling industry.

Chief Bankruptcy Judge Thomas B. Bennett has set a hearing on the bankruptcy for 8 a.m. Pacific time today.

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-- Richard Fausset

Photo: Alabama Gov. Robert Bentley, shown here at an unrelated meeting Wednesday, is less than pleased with Jefferson County's decision to file for bankruptcy. Credit: Dave Martin / Associated Press

 
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Rene Lynch has been an editor and writer in Metro, Sports, Business, Calendar and Food. @ReneLynch

As an editor and reporter, Michael Muskal has covered local, national, economic and foreign issues at three newspapers, including the Los Angeles Times. @latimesmuskal


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