The Biggest Municipal Bankruptcy in U.S. History
The biggest municipal bankruptcy in American history was filed Wednesday by Alabama’s Jefferson County. The county, which is the home of Birmingham, Alabama’s biggest and most economically powerful city, has been struggling with its debts for years. After a closed door meeting that went on for two days, county commissioners voted 4-1 to declare bankruptcy. The meeting was a final attempt to restructure its debts out of court.
“The county has negotiated extensively and in good faith with its creditors and their representatives about restructuring the county’s debts out of court. Despite the county’s best efforts, these negotiations have not produced a deal that fairly treats the county and its citizens, and there is no reason to believe that further out-of-court negotiations will lead to a fair, acceptable result.” County Commission President David Carrington said in a statement after Wednesday’s vote.
Last September, a provisional deal was established to settle $3.14 billion dollars of debt. Commissioners had hoped that this tentative deal would help them avert bankruptcy indefinitely, but the deal fell apart, due to what the commissioners describe as, the creditors’ refusal to meet the terms of the previous agreement. County commissioners were also upset by the fact that the savings which was granted in the September deal, had decreased by approximately $140 million.
“Creditors ultimately were unwilling to make the economic concessions contemplated in the term sheet and the receiver made additional demands inconsistent with the term sheet that the commission was unwilling to accept.” The commission stated in a press release announcing the bankruptcy filing.
Jefferson County’s debt escalated in the mid-2000s when Birmingham’s former mayor, Larry Langford, accepted bribes in exchange for giving $7.1 million in sewer-bond business to a friend of his who was a bond underwriter. Langford was sentenced to 15 years in prison last year for his role in the corrupt business dealings that fueled the county’s multibillion-dollar sewer debt.
Carrington assured Jefferson County’s citizens that the Chapter 9 bankruptcy filing would not interfere with the delivery of essential services, or payments to employees and vendors. He also added that the county is working with advisers to prepare a Chapter 9 plan to adjust the county’s debt and to emerge from Chapter 9 as soon as it can.
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