In the late afternoon of Wednesday, November 9, Alabama’s Jefferson County filed for bankruptcy protection under Chapter 9, a chapter reserved for municipalities only. The county commissioners had struggled to reign in the county’s out-of-control debt, only to decide in a 4-1 vote to file under the U.S. Bankruptcy Code. “We’ve reached that last resort,” said County Commissioner Joe Knight, “We could continue and keep kicking this can down the road, but I think the people of Jefferson County have had enough.” Indeed, they probably have.
Phoenix Bankruptcy Attorneys Are Stunned By the Figures
Phoenix Bankruptcy attorneys were somewhat stunned to learn of the magnitude of Jefferson County’s debt – over $4 billion! That is a record breaker, taking the position of largest U.S. municipal bankruptcy in history away from Orange County, California ($1.7 billion, more or less), which has held that unenviable title since 1995.
Cahaba River, Sewer Systems, EPA, and Corruption
Jefferson County’s financial woes began back in 1994. That was the year an environmental lawsuit was filed against the county by the U.S. Environmental Protection Agency and three private citizens in an effort to protect the Cahaba River from pollution. As part of that lawsuit, the county entered into a consent decree that involved its taking over more than twenty sewers systems from local governments, along with thousands of miles of sewer lines within its borders. An enormous undertaking and expense for any municipality, the county floated revenue bonds to generate the money needed to rehabilitate this extensive sewer system and comply with the consent decree.
Political corruption, bribery, mismanagement, escalating project costs, a shift away from fixed interest bonds to variable rate bonds, followed by the subprime mortgage crisis, and the Alabama Supreme Court’s end to the county’s $70 million occupational tax last March (eliminating almost 25% of the county’s annual revenue) – all worked into a Bermuda Triangle of debt for the 659,000 residents of Jefferson County. The Jefferson County seat is the great city of Birmingham, the largest city in Alabama with a population of about 212,000.
With so many Alabama residents, muni-bond investors, and creditors affected by the Jefferson County bankruptcy, the Phoenix bankruptcy attorneys at the Pew Law Center will continue to report on this historic case as information becomes available.