Judge clears way for bank­ruptcy

Jef­fer­son County in Alabama more than $4B in debt

The Washington Times Daily - - Nation - BY JAY REEVES

BIRM­ING­HAM, ALA. | A judge has cleared the way for an Alabama county to move for­ward with the largest mu­nic­i­pal bank­ruptcy in U.S. his­tory, over­rul­ing Wall Street claims that state law didn’t al­low the county to file the case.

U.S. Bank­ruptcy Judge Thomas Ben­nett is­sued his or­der late Sun­day, al­low­ing Jef­fer­son County, the state’s largest county, to re­main in bank­ruptcy as it at­tempts to sort out more than $4 bil­lion in debt linked to bor­row­ing for the county’s sewer sys­tem.

Judge Ben­nett’s decision could be re­viewed by the 11th U.S. Cir­cuit Court of Ap­peals, which al­ready has been asked to con­sider an­other ques­tion in the case.

Home to the state’s largest city of Birm­ing­ham and more than 650,000 peo­ple, Jef­fer­son County filed the largest mu­nic­i­pal bank­ruptcy ever in Novem­ber af­ter three years of ne­go­ti­a­tions failed to re­sult in a set­tle­ment to pay off the debt.

Lenders asked Judge Ben­nett to throw out the case dur­ing a hear­ing De­cem­ber, ar­gu­ing that Alabama’s 1901 Con­sti­tu­tion doesn’t al­low Jef­fer­son County to file a mu­nic­i­pal bank­ruptcy.

Try­ing to stop the bank­ruptcy in a move that could have re­sulted in more ne­go­ti­a­tions, a dozen lenders led by the Bank of New York Mel­lon claimed Alabama law per­mits bank­ruptcy only for bond debt. Jef­fer­son County has a dif­fer­ent type of debt called war­rants, they ar­gued.

The county ar­gued that bankers were mis­ap­ply­ing state law in hopes of get­ting the case dis­missed, and that any gov­ern­ment in the state can go bank­rupt no mat­ter what kind of debt it has.

Judge Ben­nett ruled Jef­fer­son County is an in­sol­vent mu­nic­i­pal­ity un­der state law and ne­go­ti­ated in good faith to re­solve its debts, so the bank­ruptcy can move ahead.

Jef­fer­son County cited $4.15 bil­lion in debt when it filed Chap­ter 9 bank­ruptcy, far ex­ceed­ing the pre­vi­ous record set in 1994 by Orange County, Calif., over debt to­tal­ing $1.7 bil­lion. Jef­fer­son County’s fi­nan­cial prob­lems re­sulted from a mix of out­dated sewer pipes, the econ­omy, court rul­ings and public cor­rup­tion.

County of­fi­cials say higher sewer rates will re­sult from the debt. Faced with bud­get short­falls af­ter courts threw out a sep­a­rate job tax, the county has cut staff, re­duced ser­vices and closed out­ly­ing court­houses as it at­tempts to bal­ance its books. Res­i­dents rou­tinely wait in lines for hours to con­duct sim­ple busi­ness like re­new­ing their car tags.

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