Jefferson County, Ala., commissioners, faced with massive sewer-system debt and loss of a major revenue source, filed for bankruptcy Nov. 9, saying efforts to negotiate with creditors had failed and future talks would not be productive.
With $4.1 billion in sewer, school and general obligation debt, the filing would be the largest municipal bankruptcy in U.S. history, outpacing the $1.7 billion bankruptcy by Orange County, Calif., in 1994.
Jefferson County, with about 658,000 residents, is the state’s largest and its cities include Birmingham.
David Carrington, commission president, and Jimmie Stephens, finance chairman, have been negotiating with creditors, including JPMorgan Chase, since August in an effort to avoid bankruptcy. Earlier negotiations had been led by John S. Young Jr., named receiver for the sewer system last year.
Carrington and Stephens reached a tentative agreement in September that would let the county refinance $2.05 billion in sewer debt, levy a single-digit rate increase, mandate sewer hookups for new construction and create an independent board to run the system until the debt is repaid. They have been working on a final agreement to present to Gov. Robert Bentley (R), who would call a special legislative session to enact laws to deal with the crisis.
However, in the last two weeks they ran into a $140-million financial gap and possible higher rate increases for non-residential users, Carrington told reporters after the filing.
"The rate increases got back to 8.2% for residential, but other classes could go to infinity," he said. The settlement would have had all users paying 6.5%, less than the 8.2% originally planned. Carrington could not offer a timetable for emerging from bankruptcy, but in a statement said it "would be facilitated by enactment of legislation by the Alabama State Legislature to address the General Fund shortfall."
That shortfall was caused when the state Supreme Court ruled in March that the county’s occupational tax was invalid. That tax made up more than 40% of unrestricted revenues and the county had to slash more than $30 million from its budget, including laying off more than 500 employees, eliminating another 160 vacant jobs, closing four satellite courthouses and cutting other services.
The county also had about $20 million in costs related to recovery from April tornadoes, the commission said in a resolution authorizing bankruptcy. Bentley, who has repeatedly said he would convene a special legislative session to deal with the issues, said he was disappointed by the move.
"The settlement that the county rejected today would have reduced the sewer debt by more than $1 billion and significantly reduced proposed sewer rate increases," he said in a statement.
"By filing for bankruptcy, the county commission now relinquishes control of its affairs into the hands of a federal bankruptcy judge," he said.