Bessemer Sewer Cost Nation Alabama

Jefferson County's debt-laden road has seen other travelers

BIRMINGHAM, Alabama -- If the Jefferson County Commission votes to file for bankruptcy, it would be the largest municipal bankruptcy in U.S. history. But it wouldn't be the first county or city -- even in Alabama -- to go down that path.

Since 1981 there have been 35 cities, towns, villages, and counties nationwide that have filed for protection under Chapter 9 of the federal bankruptcy code, according to online U.S. Bankruptcy Court records. That includes one county and four cities in Alabama -- and one of the cities filed twice.

Chapter 9 is the section of the U.S. Bankruptcy law under which only cities, counties and other public authorities can file to protect themselves from creditors while they develop a plan on how they will repay the debt. So it's rarely used.

"It is an extraordinary step for a county or municipality," said Buddy Oldshue, a Tuscaloosa attorney who is immediate past chairman of the Alabama State Bar's bankruptcy and commercial law section. "For any county or municipality it would be a choice of last resort,"

Only three counties have taken the step to file for bankruptcy in the nation -- Orange County in California in 1994, Greene County, Alabama in 1996, and Boise County, Idaho, earlier this year -- in the past three decades.

Congress in the 1930s enacted the first municipal bankruptcy laws as just over 2,000 cities began defaulting on debt during the Great Depression, according to a National Bankruptcy Review Commission that met in the late 1990s. The law has undergone changes since then, including some major changes in the late 1970s, according to the review commission's report.

In all, just over 200 bankruptcy Chapter 9 cases have been filed in the United States in the past three decades, according to bankruptcy records. Other than the 32 cities and three counties, most of the others that have filed for Chapter 9 bankruptcy are public authorities, including water and sewer districts and health care and transit authorities.

A number of the Chapter 9 bankruptcies were dismissed for various reasons before the bankruptcy process was completed.

Alabama has had nine public entities to file for Chapter 9 bankruptcy since 1981. That's four cities, one county, and four public authorities, including the one that operated the amusement park once known as Visionland near Bessemer. Among the four cities are Lipscomb and Prichard, which filed twice -- once in 1999 and then again in 2009.

Alabama County Faces Possible Record Bankruptcy

The commission president, David Carrington, said other possibilities include extending talks with creditors led by JPMorgan Chase & Co. or accepting a settlement offer. But something must be done to resolve a crisis that has cast a shadow over the county for so long, hurting economic development and industrial recruiting amid the uncertainty, he said. The county — Alabama's historic economic hub with some 658,000 residents — has been trying to avoid filing bankruptcy since 2008. The deal it offered last week to JPMorgan Chase and other creditors would erase more than $1 billion of its debt with the promise of repaying the remaining amount through a combination of modest sewer rate increases and loans. But lenders have yet to respond to what amounted to a last-ditch effort to avoid bankruptcy. A court-appointed official last month recommended a 25 percent rate hike for sewer customers, whose average residential bill would increase from $37.74 a month to $46.88, calling it a necessary step toward financial viability. Commissioner Sandra Little Brown said the 25 percent increase is too high, and she prefers filing bankruptcy since cost increases could be limited to the single digits. A federal court forced Jefferson County to begin a huge upgrade of its outdated and overwhelmed sewer system to meet federal clean-water standards in the '90s, and officials used bonds to finance the improvements. Acting at the suggestion of outside advisers in a series of deals that were later shown to be laced with bribes and influence-peddling, the .....

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