90.3 WBHM Birmingham - Residents of Jefferson County are trying to figure out what's next, now that county leaders have filed the largest municipal bankruptcy in U.S. history. The county's $4.1 billion filing is seen as closure by some. Others say the bankruptcy is an economic black eye for the entire state. WBHM's Andrew Yeager reports.


Jefferson County's sewer debt crisis has consumed many hours for many people.

“Two governors. Two sets of county commissioners. We’re on the second set of legislators. We’ve been hard at it…”

Commissioner Joe Knight stands in the county courthouse, just down the hall from where a settlement with creditors ultimately failed after three-and-a-half years of negotiations. Knight says changes to the deal in the last few days favored creditors, not residents of Jefferson County. He adds the possibility of a settlement was becoming remote.

“So what we have decided to do is pull the plug, get a backbone and fight it.”

In other words, file for bankruptcy and see what happens in court.

Jefferson County’s whole financial mess is complicated. It began when the county borrowed money to fix an aging sewer system. Those deals were rolled into complex financial transactions which left the county unable to pay when the economy turned sour. Corruption surrounded the deals with several county officials going to prison. More recently the county lost a legal challenge to a jobs tax and with it, lost significant revenue.

County Commissioner Jimmie Stephens says he’s disappointed with bankruptcy, but it does give the county a new starting point.

“This is the first day. This isn’t the end. This is the beginning of a new life in Jefferson County.”

A new life might not be so rosy. The county has already laid off hundreds of workers and closed offices during the financial turmoil. The commission president says now even more cuts are on the way. Alabama Governor Robert Bentley said in a statement the sewer debt crisis has been an impediment to economic growth and bankruptcy will be an even greater challenge to overcome. And he says it won’t just affect the Birmingham region, where Jefferson County is. It’ll affect all of Alabama. But it’s really hard to know right now what that effect may be.

“A chapter 9 bankruptcy is rare to begin with and one of this size is unprecedented.”

Samford University finance professor Melissa Woodley says chapter 9 or municipal bankruptcy does come with a stigma. But Woodley says Jefferson County is in a better position now under bankruptcy because the county crafts its own plan which is either approved or rejected by a judge. The county can also sue its creditors as Orange County, California, did when it filed municipal bankruptcy in 1994, which until yesterday had been the country’s biggest filing.

“The bank involved then was Merrill Lynch. They sued Merrill Lynch and got a substantial portion of the debt back.”

Woodley says Jefferson County’s bankruptcy is not unique or unforeseen. It comes as governments from Harrisburg, Pennsylvania, to Italy and Greece are weighed down by debt.

Wednesday night, Elizabeth Casswell was working on her laptop at a Birmingham coffee house. She calls the whole situation ridiculous. She says the long march to bankruptcy means taxpayers have already been shelling out money for lawyers and analysts.

“Most people if they didn’t have this strange ideological objection to it would have made a decision to file it sooner.”

While county commissioners speak optimistically of a new day and growing back stronger, Jefferson County and Alabama still face a weak economy and now numerous unanswered questions of bankruptcy.

~ Andrew Yeager, November 10, 2011