The Chapter 9 petition pegs the mess at $4 billion, making it the largest local government in U.S. history to declare bankruptcy (the previous record holder was Orange County, California’s $1.7 billion filing in 1994).

 

As The New York Times wrote, “Jefferson County’s debt grew out of poorly conceived efforts to finance a court-ordered rebuilding of its decrepit sewer system.” Under the guidance of JPMorgan Chase, county leaders invested in “a complicated combination of debt instruments and derivatives that was supposed to save money.”

 

Instead, the county found itself saddled with debts that were much larger than its entire yearly budget. More than 20 officials and businessmen have been convicted of corruption, including Birmingham’s mayor, Larry Langford, who was convicted of fraud and money-laundering for taking bribes funneled to him by Wall Street bankers. No one at JPMorgan has yet been charged with criminal misconduct.

 

County commissioners tried unsuccessfully in September to negotiate an agreement that called for creditors to concede $1 billion of the debt, while taxpayers would have faced sewer rate increases of up to 8.2% annually.

 

The bankruptcy leaves JPMorgan and other debt-holders facing hundreds of millions of dollars in losses. And residents may still have to pay higher taxes or sewer bills to eventually pay off some of the boondoggle’s cost.

-Noel Brinkerhoff

 

Ala. County Votes for Largest Municipal Bankruptcy (by Philip Rawls and Jim Van Anglen, Associated Press)

Jefferson County Alabama Files Biggest Municipal Bankruptcy (by Steven Church, William Selway and Dawn McCarty, Bloomberg)

Alabama Governor Fails to Prevent County’s Record $4 Billion Bankruptcy Filing (by Mary Williams Walsh, New York Times)

JPMorgan Chase Gains Booming Profits after Suckering Alabama’s Biggest County (by Noel Brinkerhoff, AllGov)