Extreme economic hardships for many municipalities are pushing some cities to consider extreme actions – such as the rarely occurring municipal bankruptcy. Consider the case of Birmingham/Jefferson County, AL.
At press time, what was expected to be the largest municipal bankruptcy in U.S. history was delayed for a week and expected to be narrowly averted after Wall Street blinked and offered a deal to reduce the debt-load of Birmingham/Jefferson County, AL. Local officials had until Aug. 4 to negotiate a new settlement with investors.
The county, with a population of roughly 660,000, owes more than $4.1 billion – about $3 billion just for the sewer system. The county’s settlement offer would erase more than $1 billion of its debt with the promise of repaying the remaining amount through a combination of modest sewer rate increases and loans. Creditors came back with a compromise on July 28 which Jefferson County officials are considering as negotiations continue.
Hopefully, a settlement can be reach that the country/city residents can afford. Either way, the county citizenry will be saddled with a huge debt for many years. Sadly, much of it could have been avoided.
Birmingham was nailed with major sewer violations and failure to comply with Federal clean water standards by the EPA dating back to the 1990s. The subsequent EPA Consent Decree forced Jefferson County to replace and upgrade its dilapidated and failing sewer system that for decades had been ignored or merely patched, further weakening the system and delaying the inevitable failure and regulatory prosecution.
Working with outside advisors, the county officials used bonds to finance the sewer improvements in a series of complex and risky transactions that were later proven to be tainted with bribes and influence-peddling. Payback costs dramatically began to climb in 2008 because of increasing interest rates as global credit markets struggled. The county found itself no longer able to afford the loans.
At the same time, several elected officials, public employees and business personnel were convicted of rigging the tainted deals that helped push the county into financial disaster. Those convicted included then-Birmingham Mayor and former Jefferson County Commission President Larry Langford and ex-Commissioner Chris McNair (who, incidentally, has petitioned President Obama for a pardon).
Sewer rates have already risen more than 300 percent in recent years as officials desperately tried to meet payments and stave off bankruptcy. Whatever the settlement, rates will rise again. A court-appointed receiver recommended a rate hike of 25 percent, but county commissioners were hoping to keep the increase lower.
That this dire situation should never have happened is a given. Those people serving their well-justified prison sentences aren’t the only ones to blame. Equally culpable are those officials whose failure to address the city/county’s obvious infrastructure problems which included a sewer system in an extreme state of degradation. They ignored the problem for years until it reached critical mass and the health of its citizens was at high risk. When comparing the funding required to address the problems with the impacted area’s population, the Birmingham consent decree has one of the highest cost ratios of any consent decree to date.
Even in good times, very few cities want to raise their sewer/water rates, float new bonds or even change long-term spending habits. No doubt this is a time of economic hardship for many, including cities, large and small, all across the country. But cities are largely on their own to find answers. Right or wrong, federal funding assistance for cities to address their sewer/water issues has all but disappeared.
But the EPA mandated prosecution of municipal violators marches on and the health of U.S. citizens must remain a priority. Cities cannot avoid their infrastructure problems any longer. Elected officials must take responsibility for current conditions – and act, even if it’s painful medicine.
There’s an old saying that you can’t fight City Hall. Unfortunately, the sad story of Birmingham/Jefferson County is that City Hall fought the people and the people lost to the tune of $4.1 billion. I appreciate that current officials are trying to bring back integrity to their municipal government and regain the respect and trust of the residents. Regardless, it’s going to be a long time before Jefferson County, AL, will be able to restore local confidence in a responsible municipal government that their citizens so desperately need and deserve.