Alabama county readies for record bankruptcy

July 27, 2011

By Associated Press

BIRMINGHAM, Ala. — Alabama’s largest county began laying the groundwork Tuesday for what would be the largest-ever U.S. municipal bankruptcy after three years of trying to work out a solution with Wall Street to more than $3 billion in debt linked to a massive sewer-rehabilitation project tainted by corruption.

Officials in Jefferson County hope to avoid new layoffs but may have to raise sewer rates or trim public services. On Tuesday, county commissioners approved resolutions to hire prominent bankruptcy lawyers and to sell bonds later in case money is needed to emerge from a Chapter 9 bankruptcy, the type that can be filed by governments.

Two of the five commissioners said there’s an 80 percent chance the county will file bankruptcy, and a vote could come at a meeting scheduled for Thursday in Birmingham, the county seat and Alabama’s largest city.

The commission president, David Carrington, said other possibilities include extending talks with creditors led by JPMorgan Chase & Co. or accepting a settlement offer. But something must be done to resolve a crisis that has cast a shadow over the county for so long, hurting economic development and industrial recruiting amid the uncertainty, he said.

“This county deserves a resolution to this problem. We cannot let this thing go on another three years,” Mr. Carrington said. “We will do what we were elected to do.”

Jefferson County’s bankruptcy filing would be nearly twice as large as the record one filed by Orange County, Calif., in 1994 over debts totaling $1.7 billion. One of the attorneys retained by Jefferson County had a leading role in representing Orange County.

Jefferson County Commissioner Jimmie Stephens said he favors bankruptcy unless there’s “meaningful progress” in talks with creditors, and quickly.

The county already has laid off hundreds of workers and reduced services because of problems unrelated to the bankruptcy threat, and commissioners said they did not anticipate additional immediate reductions should the county file for bankruptcy.

But Andrew Bennett, who works in a courthouse annex in Bessemer, said he worries that the county will repay lenders at the expense of needy people who cannot afford to pay more for sewer service and would be harmed by any possible cuts in county services.

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