Current Weather
The Spy FM

Alabama County Bankruptcy Filing Is Biggest In U.S. History

Filed by KOSU News in US News.
November 10, 2011

Alabama’s Jefferson County has filed for what is the biggest municipal bankruptcy in U.S. history. The county commission voted 4-1 in favor of seeking bankruptcy protection on Wednesday after a debt-restructuring deal fell apart.

As The Birmingham News reports the history of the more than $4 billion in debt spans a decade and mostly involves a failed sewer construction deal fraught with corruption. Jefferson County is home to Birmingham, Alabama’s largest city.

The News reports:

The bankruptcy decision came after commissioners spent about 11 hours over two days huddled behind closed doors on the fourth floor of the Jefferson County Courthouse in Birmingham with their lawyers discussing legal options, including an ongoing attempt to reach a settlement with sewer-debt creditors.

By Wednesday afternoon, they gave up on the settlement, emerged from their closed session and moved down to the second-floor Commission Chamber to vote in favor of bankruptcy — something Gov. Robert Bentley and many of Birmingham’s key business leaders had urged them to avoid.

In doing so, Jefferson County’s collapse earned a place in the history books, far eclipsing the previous biggest municipal bankruptcy — a $1.7 billion filing by Orange County, California, in 1994 — even when inflation is factored in.

Reuters reports that Jefferson County’s problems escalated in the mid-2000s “when bond issuance deals to upgrade its sewer system soured amid widespread corruption, bribery and fraud charges that led to some 22 convictions.”

Larry Langford, the former Democratic mayor of Birmingham, was among those convicted “for his role in corrupt business deals that fueled the multibillion-dollar sewer debt.”

The Wall Street Journal steps back and reports on what this might mean for the larger municipal bond market in the country:

Jefferson County is the fourth local government to file for municipal bankruptcy so far this year, after Harrisburg, Pa.; Central Falls, R.I.; and Boise County, Idaho. A judge has already dismissed Boise County’s case, and Harrisburg’s right to file is being contested by its mayor and the state. A judge will decide that case on Nov. 23.

“This is a bad thing for market sentiment,” said Matt Fabian, managing director of Municipal Market Advisors. “Investors have a deep-seated mistrust of issuers and this will only help justify that mistrust. It shows issuers are more willing than in the past to use bankruptcy.”

While the size of Jefferson County’s debt is notable, municipal bankruptcies remain rare. Jefferson County is the 49th bankruptcy among U.S. cities, counties, villages and towns since 1980, Mr. Spiotto said. That compares with thousands of corporate bankruptcies each year.

USA Today reports that the the Chapter 9 petition doesn’t wipe out the entire $4.1 billion debt. A county commissioner told the paper that it was unclear how much the county would have to pay back. [Copyright 2011 National Public Radio]

Leave a Reply

9PM to 5AM The Spy

The Spy

An eclectic mix of the Spy's library of more than 10,000 songs curated by Ferris O'Brien.

Listen Live Now!

5AM to 9AM Morning Edition

Morning Edition

For more than two decades, NPR's Morning Edition has prepared listeners for the day ahead with two hours of up-to-the-minute news, background analysis, commentary, and coverage of arts and sports.

View the program guide!

9AM to 10AM The Takeaway

The Takeaway

A fresh alternative in morning news, "The Takeaway" provides a breadth and depth of world, national and regional news coverage that is unprecedented in public media.

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center