BIRMINGHAM, ALABAMA-Yesterday, the Jefferson County Commission in Alabama voted to file for Chapter 9 bankruptcy. This makes this bankruptcy filing the largest municipal bankruptcy in U.S. history. The previous record was when Orange County filed in California in 1994.
Jefferson County is Alabama’s most populous county, they are burdened by a four billion dollar debt. They came to this end on Wednesday because of the downgraded credit ratings of the companies that insured the county’s long term debt. In recent years, the county borrowed to pay for a failing sewer system. While this is standard, the county had some shady, corrupt re-financing deals that were tied to mortgages. When the mortgage lending crises hit, the credit dealings of the county, that relied on exotic interest rate swaps, back-fired. This resulted in skyrocketing interest rates which the county couldn’t keep up on.
Another reason that brought on the bankruptcy filing was the occupational tax that was deemed unconstitutional. The county relied heavily on those monies and when the tax was recinded, it caused another $66 million drop in revenues.
The county has laid off 550 workers and cut deep into county programs.
“The county has negotiated extensively and in good faith with its creditors and their representatives about restructuring the county’s debts out-of-court,” said commission President David Carrington, “Despite the county’s best efforts, those negotiations have not produced a deal that fairly treats the county and its citizens, and there is no reason to believe that further out-of-court negotiations will lead to a fair, acceptable result.”
Yesterday, Governor of Alabama, Robert Bentley is not happy with the development. In a statement to the press, he stated, “I am extremely disappointed in the action that was taken by the commission today, we feel everything was put into place to save the county from bankruptcy and to help the ratepayers and keep this embarrassing situation from occurring in the state of Alabama. What we’re going to do now is to try to control the damage to our state.”
Governor Bentley is concerned that this filing by the most populous county in the state will cause the cost of borrowing to go up for other municipal governments in the state.
County Commissioner Joe Knight said of the filing, “Bankruptcy is a measure of last resort, in my mind, we have reached the last resort.”
Chief Bankruptcy Judge Thomas B. Bennett is presently in a hearing on the bankruptcy, it began 7 am Alaska Time.