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Bankruptcy now real possibility in one Alabama county

Bankruptcy is staring one Alabama county in the face after corruption and backroom deals put the county more then $4 billion in debt.

By JAY REEVESAssociated Press / July 28, 2011

Bankruptcy in Alabama? The skyline of Birmingham, Alabama in October 2006. Alabama's most populous county is now facing bankruptcy after years of corruption and backroom deals over a sewer project.

Dennis Lathem/Birmingham Regional Chamber of Commerce/AP/File


Alabama's largest county has one week to decide whether to file for the largest-ever U.S. municipal bankruptcy or take a deal from Wall Street to settle more than $3 billion in debts linked to a massive sewer project stained by corruption.

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Sewer rates will rise one way or the other for the 658,000 residents in Jefferson County, officials say, it's just a matter of how much. The county, where rates already have jumped more than 300 percent in recent years, is Alabama's economic hub and includes the state's largest city, Birmingham.

Officials believe they can stave off any new layoffs either way, and hope they don't have to trim public services if they decide to file for bankruptcy.

County commissioners were set to vote Thursday on bankruptcy, but abruptly canceled the meeting when creditors led by JPMorgan Chase & Co. responded to the county's latest settlement offer. The commission will consider the deal for a week and likely make a decision next Thursday.

Commissioner Jimmie Stephens said the two sides weren't that far apart, and he was hopeful for a settlement.

"We're within striking distance," he said. But "it still falls outside the revenue stream which I deem to be reasonable."

A court-appointed receiver recommended a rate hike of 25 percent, or about a $9 increase on a monthly bill, but Stephens said he hoped to keep the increase much lower.

The county's settlement offer last week 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.

The issue is important enough for Gov. Robert Bentley's to be involved in the talks.

"We look forward to continuing to work with the Jefferson County Commission and their creditors to pursue an agreement that best serves the citizens of the county and the state," Bentley said in a statement.

Jefferson County has been trying to avoid filing bankruptcy since 2008. The problems resulted from a mix of outdated sewer pipes, the rough economy and a string of elected officials, public employees and businessmen convicted of rigging sweetheart deals.

Sitting on atop a downtown manhole, utility worker Josh Sullivan said years of backroom deals finally caught up with the county.

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