In an effort to avoid filing the largest municipal bankruptcy in U.S. history, officials in Alabama’s Jefferson County extended until mid-September talks with creditors holding $3.14 billion in debt incurred after officials borrowed money to fix their troubled sewer system and then entered into a number of complicated and corruption-laced refinancing deals that backfired in 2007 with the mortgage lending crisis. Those schemes also resulted in the conviction of a number of local officials and businessmen.
In a meeting held in mid August, the five-member County Commission considered an offer drawn up by a court-appointed receiver that would have forgiven more than $1 billion in debt. But commissioners stated concerns about the offer, including sewer rate hikes that would have amounted to about 25 percent over 18 months. Other plans called for increases ranging from 6.1 percent to 7.1 percent in the first three years, with 3 percent annual boosts for the next 36 years. Commissioners suggested those proposals might be acceptable.
The county of about 660,000 residents has struggled after sewer-bond refinancing collapsed during the 2008 credit fallout. It’s been trying for three years to avoid filing bankruptcy over debt payments it can no longer afford. Jefferson is Alabama’s most populous county and seat of Birmingham.
The commission unanimously voted to hold direct negotiations with the creditors, including JPMorgan Chase, which reached a multimillion-dollar settlement with the Securities and Exchange Commission after it was accused of engaging in pay-to-play schemes related to the financing deals.