Alabama County files biggest municipal bankruptcy in U.S. history

November 9, 2011

Alabama’s most populous county filed the largest municipal bankruptcy in U.S. history Wednesday, years after being plunged more than $4 billion into debt by a corruption-riddled sewer project.

Just two months after it seemed that Jefferson County had struck a preliminary deal with Wall Street bankers, talks broke down over about $140 million, said Commissioner Jimmie Stephens, who made the motion to file for the protection. Since 2008, commissioners have tried to avoid the move to settle the debt, which resulted mostly from a mix of outdated sewer pipes, the lagging economy, court rulings and public corruption.

The filing does not wipe out the whole $4.1 billion, said commission President David Carrington, who wasn’t certain how much the county will have to pay back. A plan would have to be worked out in bankruptcy court and approved by a judge and at least one group of creditors, Carrington said.

Still, the four men and one woman on the board in their 4-1 vote decided it was time to bring the issue to an end and remove the cloud hanging over the county, home to Birmingham, the state’s largest city with about 212,000 residents.

Carrington said the bankruptcy filing was not a negotiation ploy. Also, he said, consumers would probably be saddled with rising sewer rates to help pay off the debt, but he wasn’t sure how much.

If Jefferson’s bankruptcy is approved, it would overshadow the one filed in 1994 by record-holder Orange County, Calif., over debts totaling $1.7 billion.

Pennsylvania’s capital of Harrisburg recently sought bankruptcy protection under similar circumstances as it struggled with about $300 million in debt from a trash incinerator that began operating in 1972.

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