BIRMINGHAM, Ala. — A preliminary deal approved Friday with Wall Street bankers would allow Alabama’s most populous county to avoid the embarrassment of filing the largest municipal bankruptcy in U.S. history.
But to help bail their local government out of $3 billion in sewer debt, residents could see tax increases, service reductions and decades of sewer rate increases.
Even though Jefferson County commissioners approved the deal and some creditors also have agreed, bankruptcy still remains possible because the Legislature must hold a special session to approve the final elements of the agreement.
Commissioner Jimmie Stephens, who oversees county finances, said there was no certainty that legislators would approve the mix of local tax increases, budget changes and other legislation that could be required.
“It’s a problem,” he said.
The date for a legislative session won’t be set until the county and creditors work out details of the settlement, but it is likely for this fall, said David Carrington, the commission president.
Jefferson County has been trying since 2008 to avoid filing bankruptcy over $3.1 billion in debt, which resulted from a mix of outdated sewer pipes, the lagging economy, court rulings and public corruption. At the same time, it faces a separate shortfall of as much as $50 million in its operating budget.
Creditors want all the county’s problems addressed at once to get the government back on stable financial footing. Because of that, Alabama’s Republican-controlled Legislature could be asked to allow for tax increases at the same time as the county increases sewer rates, which commissioners said could rise for 40 years.
The package sounded like a disaster to residents waiting in line at a courthouse to renew their car tags as commissioners met one floor up.
“It’s ridiculous,” said Edward Morgan. “Last week when we had all that rain, all the sewers flooded. What are we paying for?”
Marie Gaines said people on fixed incomes can’t afford to pay more in taxes or sewer bills.
Jefferson County has about 658,000 residents and is home to both Alabama’s largest city, Birmingham, and its medical and financial centers.
The settlement proposal with Wall Street investors led by JPMorgan Chase & Co includes the lenders agreeing to forgive about $1 billion in debt, the county refinancing about $2 billion, and the a series of sewer rate increases. The commission approved it 4-1.
