Alabama County Averts Bankruptcy

The terms of the agreement call for Jefferson County, which includes the city of Birmingham, to shed about $1 billion of the debt, the majority of which is held by J.P. Morgan. The agreement also offers the county several tools to lower its interest rate on the roughly $2 billion of new debt that will be issued to replace the current warrants.

“It’s been an agonizing process; it’s been going on for three and a half years,” said one Jefferson County commissioner, Joe Knight, explaining why he voted in favor of the agreement. “Today we’re going to take a step. It’s time for a resolution of this lingering debacle.”

Mr. Knight and others on the five-member commission said they were pleased that the framework agreement called for the governor to call a special session of the state legislature this fall, where lawmakers would look for ways to help Jefferson County close a $40 million budget gap. The deficit became apparent over the summer as the commission struggled to with what to do about its giant debt, infuriating residents of the county.

Until this year, state officials had refused to help the county straighten out its finances, saying it had made its own problems and should solve them on its own.

County Commissioner Sandra Little Brown said that since the state had finally offered some help, “it would really be a slap in the face to the governor and the legislature” not to give the agreement in principle a chance. She noted that the agreement gives the county a chance to file for Chapter 9 bankruptcy court protection if the state’s efforts to help prove fruitless.

Jefferson County’s debt grew out of a flawed effort to refinance bonds it sold years ago to raise money for court-ordered sewer improvements. Chapter 9 became something of a battle cry in the county, as previous restructuring talks yielded proposals that included big increases in sewer rates. The current agreement-in-principle also calls for sewer rate increases, but smaller ones than in the past.

The one commissioner to vote against the agreement, George F. Bowman, read part of a letter he received from a county resident who urged him “not to accept the extraordinarily damaging terms,” particularly annual rate increases that could go on for as long as 40 years.

Article source: http://feeds.nytimes.com/click.phdo?i=b868cd1e47da2df7ae4a141e404b90a0