Jefferson County Commission votes 4-1 to file nation’s largest municipal bankruptcy
The Jefferson County Commission has voted 4-1 to file an estimated $4.1 billion bankruptcy, the largest municipal bankruptcy in U.S. history.
The commission’s action came after it spent approximately six hours over two days meeting with its lawyers to discuss legal options, including a Chapter 9 bankruptcy filing and a settlement with creditors on the county’s $3.14 billion sewer debt.
Commissioner Jimmie Stephens made the motion to file bankruptcy, which was seconded by Commissioner Sandra Little Brown. “It is time to resolve this once and for all,” Stephens said.
Commissioner George Bowman voted against the measure.
Another factor in the decision appears to have been the Alabama Legislature’s inability to reach a consensus on any means of helping the county resolve its financial difficulties.
Jefferson County has been flirting with bankruptcy since Feb. 12, 2008, when it first publicly acknowledged that it was in financial trouble.
Interest rates on some of the county’s $3.2 billion in sewer debt, which had been 3 percent just weeks earlier, has soared to 10 percent because of the fallout from the nation’s subprime mortgage crisis, county officials said. Payments jumped to a point where they were no longer affordable.
The situation quickly triggered a financial emergency the plunged the county’s debt to junk-bond status and began the government’s slide to what will be the nation’s largest Chapter 9 municipal bankruptcy filing. The county owes more than $4 billion.
Three years of talks with creditors, primarily Wall Street banks led by JP Morgan & Chase, have not led to a settlement and cost millions in legal fees and prompted the appointment of a receiver over the sewer system.
As it stands, the county hasn’t made full payments to bond investors, who lent money to expand and repair the decrepit sewer system, since 2008. That construction program and the political corruption surrounding has led to convictions of four elected officials, 17 other people and five companies.
JPMorgan, the lead underwriter of the Jefferson County sewer bonds, has agreed to settle charges brought by the Securities and Exchange Commission that it bribed elected officials to win the Jefferson County sewer bond business. The investment bank agreed to forfeit $647 million in fees related to Jefferson County’s bonds, without acknowledging it acted improperly.
Alabama’s most populous county with a population of about 660,000, has another financial problem unrelated to sewer debt it cannot repay — earlier this year it lost the use of an occupational tax that generated $66 million a year for the county.
Losing the tax led the commission to cut more than $30 million in spending and close the county’s satellite courthouses. And, the county’s financial plight worsened when state lawmakers in June failed to pass a limited home rule bill to allow the county to raise replacement revenue, the commission ordered layoffs of 547 workers along with deep cuts services.
The decision to file a petition under Chapter 9, the section of the U.S. Bankruptcy Code designed for municipalities becomes the largest municipal bankruptcy ever filed by a local government in the United States. The county’s $4.1 billion filing more than doubles the bankruptcy of Orange County, Calif., in 1994. Orange County filed bankruptcy after amassing $1.6 billion of investment losses.