Largest Municipal Bankruptcy in US History Filed After Creditor Deal Crumbles

Many weeks ago, it seemed Jefferson County, AL officials and its main creditors on a sewer renovation project that has sucked its coffers dry had the framework for deal that would keep the community out of filing for Chapter 9 bankruptcy. But then, the prospects for such a deal were gone and the largest municipal bankruptcy in the history on the union now has gone on the books.

Jefferson County Commissioners voted 4-1 Tuesday evening to declare bankruptcy. Alabama Gov. Robert Bentley confirmed publicly that a deal with creditors that could have renegotiated upwards of $1 billion of the $3 billion in debt tied to a sewer renovation had fallen through before the decision. The Chapter 9 filing, which lists the county’s debts in excess of $4 billion, is nearly double that of the well-documented filing in Orange County, CA nearly two decades ago.

Creditors seemed to throw at least a temporary lifeline to Jefferson County in the form of a renegotiation plan this summer. However, county officials and the creditors were reportedly hundreds-of-millions of dollars apart on terms, and officials made it known they would not agree to waiving Chapter 9 filing rights under any agreement. Even Bentley noted earlier this summer on multiple occasions that Chapter 9 was "a very strong possibility," though his statement on the matter on Tuesday could best be described as sheepish or humbled.

The filing, perhaps a harbinger of things to come amid cities struggling with bad investments, shrinking tax revenues and, notably, pension/health care entitlements; the Jefferson County filing follows those of Harrisburg, PA and Central Falls, RI from recent months. At least a half-dozen municipalities have filed for Chapter 9 bankruptcy protection in 2011.

Brian Shappell, NACM staff writer

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