AlabamaWith a Thursday afternoon deadline fast approaching, investors and officials in Alabama are working to review new proposals to avert the biggest municipal bankruptcy in American history. Jefferson County, home to Birmingham, Ala., may have to file Chapter 9 on its $3.14 billion debt if is isn't able to negotiate a settlement.

So far, the negotiations have come up short by $300 million. Jefferson County has asked bondholders to forgive $1.3 billion of its debt, while creditors have offered to write off $1 billion, according to Bloomberg.

"I think they should have filed bankruptcy a year and a half ago," Craig Harris, mayor of Jefferson County town Kimberly, Ala., told the North Jefferson News. "This is a no-win situation."

Even as negotiations come down to the wire, bankruptcy and debt expert James Spiotto, an attorney with Chapman and Cutler, tells DailyFinance it is in the county's best interest to find a solution outside of bankruptcy. He cites New York City's debt crisis in 1975 and Philadelphia's in 1991 as historical precedents.

"[An alternative solution] saves time, expense and market disruption," he says. "It has been to the benefit to state and local to do it that way. They prefer that they pay their bond debt so they can maintain access to markets and [have cash flow] to pay for [expenses]. It allows local governments to make decisions locally."

Sewers, Scandals and Derivatives

The bankruptcy drama stems from a federal court order requiring the county to rebuild its sewer system years ago. To finance the project, the county issued bonds that were ultimately linked to derivatives. Some of the deals were marred by scandals, and then, in 2008, the financial crisis took its devastating toll, according to The New York Times.

This year, things took another turn for the worse after a key tax revenue stream was lost, forcing the county to lay off hundreds of employees, slash services and raise sewer rates.

If Jefferson County does file Chapter 9 tomorrow, it will have a long-term effect and will prevent the county from accessing capital down the road, Spiotto says. Bankruptcy would not eliminate the debt, but would allow the municipality itself to present a debt-adjustment plan.

"This is not the time to see how much charity there is in capital markets," Spiotto says. "They will see that the market is not that forgiving. It's cheaper in the long run to find [an alternative solution.]"

A default in Alabama also could rattle the $2.9 trillion municipal bond market, which has already seen plenty of fluctuation in the last six months.

More Municipal Bankruptcies

The possible bankruptcy comes on the heels of at least five other municipal bankruptcies this year, including those in Central Falls, R.I., which filed Chapter 9 on Aug. 1 over pension problems. Harrisburg, Pa., has also been talking about filing for bankruptcy over its $5 million deficit, even as the City Council struggles to find an alternative plan by its Sept. 6 deadline.

The largest municipal bankruptcy to date was that of Orange County, Calif., in 1994. The county suffered losses of $1.6 billion from bad investments. Since 1980, there have been 254 municipal Chapter 9 filings, mostly by small special-tax districts and municipalities, according to Spiotto. One-third of these have been dismissed, he adds.

"We need to keep in mind that municipal bankruptcies are extremely rare, so in that sense it is best to look at them as outliers," Gregory Minchak, spokesperson for the National League of Cities, tells DailyFinance. "They are very specific to the cities and where we see them happen and there usually has been some big event that caused it."

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The only area in the U.S. that HAS NOT shown a decline in teen pregnancy is the Bible Belt, which includes Alabama.
.Maybe the state would be in better shape if they stopped mating with their aunts, Uncles & cousins, and making more 12 toed babies in more trailer parks.
The sales of Meth & Chew & box-o-wine is not going to help the finances of the state.

April 18 2012 at 6:29 PM Report abuse rate up rate down Reply

The people of Alabama, need to get to work.
The residents, counties, cities & the State blamed it's problems on "illegals", and drove THAT workforce out of Alabama.
All of those white Americans looking for work, never showed up, crops rotted away, and no one was around to plant, or work on contruction. On top of THAT, the big "Mexican" families buying house hold goods moved to other states.....leaving even K-Mart looking for customers. Where did the good Americans looking for work go to, when jobs opened in the fields of a good number of farms? Those "Americans" who "lost "their jobs to the "illegals" never showed up to do Hot Tar roofing, or to dig sewers / septic tanks. Farms have gone bankrupted, contruction was never started, or finished, and packing plants had to cut back to two shifts. Is it any wonder that counties, cities and eventually the state is doomed?

April 18 2012 at 6:23 PM Report abuse -1 rate up rate down Reply
Harry Hurt

It's the socialist give-away polititians who are ruining this country. Here in Michigan, we got rid of that "governor" Granholm, but not until she blew away all our factories, and the local businesses that factory workers supported. My laundromat prospered until the factory workers moved away. Then I went bankrupt because of all the taxes put on small businesses. Thanks a lot democrats. I now select who is the best nominee out of the list of Republicans, and whoever wins the nomination, I vote for them in the national election. I will NEVER vote democRAT.

April 18 2012 at 4:20 PM Report abuse rate up rate down Reply
Butcha of Naples

I could care less if Alabama went down the tubes. As long as it took Mississippi, Arkansas, Louisiana, Georgia, North and South Carolina with it. Know what I heard a man say last week. The only problem with Atlanta is that it's a wonderful city but after you leave it, you're in Georgia.

April 18 2012 at 2:31 PM Report abuse -1 rate up rate down Reply


August 04 2011 at 9:42 PM Report abuse rate up rate down Reply
1 reply to waynefdurr's comment

The president may be dumb and black but I'm old enough to remember all of them beginning with Roosevelt. With the exception of Obama all of them were white and believe me quite a few of them were dumb.

August 05 2011 at 3:03 PM Report abuse rate up rate down Reply

Another state that was ran by the Dems...... Does anyone see a pattern here.. come on wake up.. I am tired of paying more then my share........

August 04 2011 at 3:40 PM Report abuse rate up rate down Reply
2 replies to enterprisemech's comment

the last 2 goveners are republican including the presnt see a pattern here .

August 04 2011 at 5:16 PM Report abuse +1 rate up rate down Reply
1 reply to hugozoon's comment

But the city of Birmingham is not. I grew up in Jefferson County. The election of a man named David Arrington - a liberal democrat - who heald office for twenty years spelled doom for the city. Ever since the city that at one time boasted the highest average standard of living per person in the United States has completely collapsed and has pulled Jefferson County down with it. David Arrington is literally the mold for Barrack Obama. He came from a near identical background just change the names. A social organizer he insured minority rights all the while running out of town every single major corporation that had been so good for the city. His followers continued the destruction to this day. Birmingham is dead and bringing Jefferson County down with it.

August 04 2011 at 6:42 PM Report abuse +1 rate up rate down
Retired Person

Jefferson County is run by left leaning liberals...entitlement society..

April 18 2012 at 9:58 PM Report abuse rate up rate down Reply

The article fails to mention the sewer project was designed to have additional housing added onto the existing sewer lines. When the housing market went bust because of ACORN and the Democrats, that washed away the planned housing projects. These bonds are called "dirt bonds" because all that is there is dirt. Place the blame where it belongs, on Barney Frank and Co.

August 04 2011 at 1:22 PM Report abuse rate up rate down Reply

What's wrong with this picture: US corporations post the largest profits in HISTORY last quarter.....while MOST Americans are going broke or trying just to keep their heads above water.....The consequences of BushCo and Reaganomics continue to plague our nation and will continue to until we throw these self-serving republicans out of office.....And send the Blue Dogs packing with them......

August 04 2011 at 12:52 PM Report abuse -1 rate up rate down Reply
1 reply to mspa83's comment
Retired Person

In Birmingham it was the liberal EPA crowd that shut down the steel mills...

April 18 2012 at 10:01 PM Report abuse rate up rate down Reply

So how's the HOPE and CHANGE working out for ya? Had enough of this inexperienced, incompetemt, hard headed empty suit in the White House ? Wake up folks, we're heading for a Depression like we've never seen before. There is only one cure and that's to remove the faker in the Oval Office before he does irreparable damage to our country.

August 04 2011 at 12:30 PM Report abuse +1 rate up rate down Reply
2 replies to lulu0510's comment

The damage has alreday been done, the nxt Pres. will have a real job fixing the mess he'-she will be left with, Obama should be mandated to forgo his retirement and all the perks, he doesn't deserve a damn thing but removal for incompetence.

August 04 2011 at 12:57 PM Report abuse -1 rate up rate down Reply

I agree with you with most of what you say , but putting the full blame on the president is unfair and voting him out of office would make very little difference. Until the voters see the failed policies of progressive ideologies so well preserved by the 10 term politicians who promise them something for nothing, we will continue to destroy the "goose that laid the golden egg".

August 04 2011 at 4:47 PM Report abuse +1 rate up rate down Reply

citys,countys,states,and us.all broke.but the crooked politicions never loose a penny out of there pockets.if theyu were to get there money last,inclouding expences this would not happen.i hate to say this but bullets seem the only way.

August 04 2011 at 11:37 AM Report abuse +2 rate up rate down Reply