Alabama county's bankruptcy would top $4.1 billion

AP News
Posted: Jul 27, 2011 5:21 PM
Alabama county's bankruptcy would top $4.1 billion

Leaders in Alabama's largest county said Wednesday a potential bankruptcy filing that could be days away would likely top $4.1 billion, or more than double the previous record set by Orange County, Calif., for a municipal bankruptcy in the United States.

The primary problem in Jefferson County is sewer debt of some $3.14 billion that the system can no longer afford to pay. But Commission President David Carrington said the county has another $1 billion in additional debt for school construction and other projects.

"It all must be included," said Carrington.

The case would easily eclipse the record municipal bankruptcy of $1.7 billion filed by Orange County, Calif., in 1994. But Jefferson County is still trying to find a way to stay out of bankruptcy court.

Commissioners said they still had an offer on the table to settle the debt with Wall Street and had yet to receive a formal response just a day before what could be a vote to file for bankruptcy. Talks are ongoing between lenders, county attorneys and state officials, they said.

But commissioners also said it would be better to file for bankruptcy than accept a deal that would dramatically increase costs for customers of the county's sewer system, which had to undergo massive renovations and expansions in the 1990s to meet federal water standards.

"We're certainly not going to settle just for the sake of settling," said Carrington.

Carrington and Commissioner Jimmie Stephens, who oversees county finances, said they expected to receive a proposal from creditors before a meeting Thursday at which officials could decide on filing for bankruptcy. Should settlement talks fail and bankruptcy become impossible to avoid, Carrington said it would be filed within days.

Jefferson County has some 658,000 people and includes Birmingham, Alabama's largest city. The county financed court-ordered sewer upgrades with risky transactions later shown to be laced with bribes and influence-peddling. A court-appointed receiver has recommended sewer rate hikes of 25 percent to get the system out of financial trouble, but commissioners want any increases capped in the single digits.

County government has been trying to avoid filing bankruptcy since 2008. The deal it offered to JPMorgan Chase and other creditors would erase more than $1 billion of its debt with the promise of repaying the remaining amount through a combination of modest sewer rate increases and loans.

Separate from the debt problem and possible bankruptcy, Jefferson County already has laid off about 550 of its 2,300 workers and scaled back government services because courts struck down an occupational tax and business license that provided more than $74 million annually for its operating budget.

Bankruptcy would cost the county about $1 million a month in legal bills, accounting fees and expert charges and could go on as long as 18 months, Carrington said, but the county should be able to avoid additional layoffs or service cuts directly related to the sewer debt.