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Jefferson County, Ala., Files For Bankruptcy


This morning, we are tracking the largest municipal bankruptcy in the history of the United States. Jefferson County, Alabama filed the papers yesterday. That county includes Birmingham, which for generations was known as one of the great industrial centers of the south. The $4 billion bankruptcy filing has been years in coming. It is seen by some as closure, and by others as an embarrassment. Andrew Yeager reports from member station WBHM.

ANDREW YEAGER, BYLINE: Jefferson County's sewer debt crisis has consumed many hours for many people.

JOE KNIGHT: Two governors. Two sets of county commissioners. We're on the second set of legislators. We've been hard at it.

YEAGER: 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.

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

YEAGER: 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.

JIMMIE STEPHENS: This is the first day of a new life in Jefferson County.

YEAGER: 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 the effect may be.

MELISSA WOODLEY: A Chapter 9 bankruptcy is rare to begin with, and one of this size is unprecedented.

YEAGER: Melissa Woodley is a finance professor at Samford University in Birmingham. She 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 can craft 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.

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

YEAGER: Last 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.

ELIZABETH CASSWELL: Most people, if they didn't have this strange ideological objection to it, would have made a decision to file it sooner.

YEAGER: 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.

For NPR News, I'm Andrew Yeager in Birmingham. Transcript provided by NPR, Copyright NPR.

Andrew Yeager