Debt is another nasty four letter word for Jefferson County, Alabama

From Europe to Washington D.C., one four little world seems to be on most politicians’ minds.


Enter Jefferson County, Alabama, which facing a crippling $3 billion in debt, last week entered the largest municipal bankruptcy filing in U.S. history — beating an infamous record held for more than a decade by Orange County, Calif.

Jefferson County officials have asked creditors to relieve up to $1 billion of that debt, which mainly stemmed from a sewer improvement project gone awry.

Sound familiar?

Last month’s municipal bankruptcy filing made by the Pennsylvania capitol of Harrisburg also stemmed from a failed capital improvement project—in this case a trash-to-energy incinerator project.  But while that project suffered from rising costs and poor decisions, its $125 million debt price tag and heated controversy seems paltry compared to the situation in Jefferson County.

That’s because Jefferson’s County ‘s story contains more than spiraling construction costs and is marked by bad deals on Wall Street and a handful of corruption convictions of local public officials related to the sewer deals.

The Birmingham News did a good job of summarizing the series of events that would ultimately lead to last week’s historic filing.

Jefferson County borrowed billions to repair and build sewers, then changed that debt from simple interest to complex financial derivatives that blew up in the Great Recession and plunged the county into default.

During the same period, the county lost its occupational tax, the source of about one-fourth the county’s general fund, through a series of actions by the Jefferson County delegation of the Alabama Legislature.”

Many county residents have blamed the investment banks, like JP Morgan, for being a major source of the fiscal mess, while others, like Bloomberg’s Joe Mysak say the public officials are the most to blame.

“Public finance has a prominent role in the largest municipal bankruptcy in U.S. history. And to be sure, Wall Street will pay and pay and pay for its part in this mess. Yet please keep in mind that the county and its leaders are the real culprits here.”

Regardless of the cause, debt stress is something most adults can relate to, whether it’s a $500,000 mortgage, $50,000 car loan or the tens of thousands of dollars in student loans that

Who wouldn’t like to see all their obligations erased? I know many friends who would love to see a few zeros lobbed off their hefty student loan balances. But what most of us also know is that erasing debt is no easy feat, and it’s definitely something that comes with major consequences.

The same will hold true for Jefferson County, which could see a variety of negative impacts in the wake of seeking Chapter 9 relief.

As Business Insider’s Grace Wyler wrote:

In the case of Jefferson County, bankruptcy could have disastrous consequences for the state — as Alabama’s largest county, it is a major economic driver for the state. It will also likely result in millions of dollars in losses for the county’s creditors, and could lead to major sewer rate hikes for the county’s residents, something commissioners have sought to avoid.

Journalists from Reuters Atlanta Bureau talk more about what this bankruptcy will mean for the people of Jefferson County in a video below.

This entry was posted in city government and tagged , , , , , , , , . Bookmark the permalink.

1 Response to Debt is another nasty four letter word for Jefferson County, Alabama

  1. Pingback: A picture is worth a thousand words: Jefferson County’s bankruptcy mess |

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s