Posted on August 18, 2008

Alabama County Is on the Brink of Bankruptcy

Jay Reeves, AP, August 16, 2008

Alabama’s largest county appears headed for the biggest municipal bankruptcy in U.S. history, a $3.2 billion mess created by the nation’s credit crunch and a colossal, corruption-riddled sewer project.

Politicians in Jefferson County—which has 658,000 residents and includes the state’s biggest city, Birmingham—are struggling to find a way out of the jam, but they have mostly abandoned talk of raising taxes and fees after running into fierce opposition at raucous public meetings.

On Thursday, with their options running out, the county commissioners all but threw up their hands and decided to let the voters weigh in on Election Day with a nonbinding referendum on whether to file for bankruptcy.

“The entire nation is watching to see how we handle this,” said Jeff Sewell, an assistant county attorney. “This is a question of character as well as one of finance.”

A bankruptcy filing by Jefferson County would shatter the previous record of $1.7 billion, set by Orange County, Calif., in 1994.


And it could damage the county’s credit rating for years to come, making it more expensive to borrow money and more difficult to finance the infrastructure improvements that can draw industries to Birmingham, a banking and medical-research center once known as the Pittsburgh of the South, back when it was a steelmaking powerhouse.


The crisis has come amid a federal bribery-and-kickback scandal involving contracts awarded on the project. Twenty-one people have been convicted in the still-unfolding case, including contractors, engineers and two former county commissioners.

Federal investigators say some of the deals by which the project was financed were corrupt, with politicians suspected of steering investment business to friends for kickbacks. But they say the corruption didn’t directly lead to the runaway debt.

Because of the project’s costs, water rates have gone up 329 percent since 1997, with the average customer now paying about $65 a month. Those increases, combined with the investigation of possible sweetheart deals, have left taxpayers angry and distrustful.


The graft investigation reached a shocking point last year with the bribery conviction of former Commissioner Chris McNair, whose daughter was one of the four black girls killed in an infamous racist church bombing in Birmingham in 1963. McNair, who oversaw the sewer work from 1996 until he resigned in 2001, was sentenced to five years in prison.

Mayor under suspicion

Among those still under suspicion is former Commissioner Larry Langford, who was elected mayor of Birmingham last year in a landslide. He has denied any wrongdoing.

The county has won repeated extensions from its creditors since March, with the latest one running through mid-November. After that, it is unclear how long the crisis can go on.