Alabama Jefferson County Chapter 9 Muni Bankruptcy "Very Strong Possibility" Says Governor Bentley

Tyler Durden's picture

Alabama's Jefferson Country, which has been teetering on the verge of bankruptcy for years courtesy of $3.2 billion in bonds related to its sewer system (a deal which has not made JP Morgan many friends south of the Mason Dixon line over the years), may soon decide to unleash the spring-loaded municipal bankruptcy dominoes. Reuters reports that "bankruptcy is still a "very strong possibility" for Alabama's Jefferson County, Governor Robert Bentley said on Saturday -- a move that could make for the largest municipal bankruptcy in U.S. history. "It is still on the table, and it's a very strong possibility," Bentley told Reuters during the National Governors Association meeting in Utah's Salt Lake City. The county is observing a "standstill period" to allow settlement talks with creditors, and this week it finalized a plan aimed at settling the debt to present to creditors." And while the municipal insolvency tsunami is merely a matter of time (it would be amusing to watch the army of Whitney bashers retract), the greatest irony would be if the Federal government were to file first, a move which as Moody's already noted would immediately send 7000 munis down the Chapter 9 rabbit hole as well, effectively bankrupting the entire $2.9 trillion municipal bond market overnight.

From Reuters on why Jefferson County would merely be the tipping point:

A handful of U.S. cities and counties have teetered toward economic collapse in the wake of the 2007-2009 recession, which created budget emergencies in most U.S. states,

Two years ago, Vallejo, California, filed for bankruptcy. The Pennsylvania state capital of Harrisburg is reviewing a rescue plan designed to avoid a bankruptcy filing.

New York's Nassau County has been under state oversight since 2000 and in January the state seized greater oversight powers. The tiny Rhode Island city of Central Falls is now effectively run by a state-appointed receiver.

In a separate interview, Rhode Island Governor Lincoln Chafee said it is an "ongoing discussion" as to whether Central Falls would seek bankruptcy protection, but added that he is concerned such a move could hurt other cities.

Granted a bankruptcy is not a given yet for all the traditional reasons:

Bentley said his view of bankruptcy -- an unpopular option because it is expensive and could freeze the county out of the bond market -- has evolved and he is now concerned it could create an "image problem" for the county and state.

The county's main city, Birmingham, is Alabama's largest and the county is a significant driver of the state's economy.

"We're trying to recruit industry in Alabama, and we're trying to recruit industry ... and I really think that hurts us when we have the largest bankruptcy," he said.

"If there's any way that we can negotiate a settlement short of bankruptcy, that is our position."

Unfortunately the decision is no longer in the hands of the county: it is in those who bought the syndicated bonds.

Bentley said he is not open to sending money to the county. He also said he would agree to support forms of credit enhancements for new county debt, but the state would not guarantee that debt.

"We would support it only with backing from the county," he said. "We're not guaranteeing the debt."

Bentley said an increase in sewer fees would be necessary to generate funds for debt payments, but the increases should not exceed 10 percent.

"We can't allow them to have 25 percent increases, that type of thing," he said.

The problem is that with the Federal government retrenching on fiscal largesse for a long time, and downstream bailouts of local and municipal governments thus becoming a very big question mark, creditors may realize that the infinite bailout ploy is ending, and could very well scramble to extract as much money as possible while the money is still available. The biggest question mark is what develops in DC this week which will be the determinant for how numerous credit committees, not only in Alabama but across corporate America, perceive their probability of getting paid, and, as a result, accelerate prepayment demands from the obligors.

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trav7777's picture

Diversity, bitchez

High Plains Drifter's picture

cut it out trav.

you know damn good and well, its all about ..... Liberté, Égalité and Fraternité......

by the way, i have a friend of mine who used to own a hummer dealership there. they had to change over to some other cars due to the demise of hummer. but the brothers liked to buy those hummers from the (black sales force he employed).......using those liar loans and so the bros could style and profile on their way back to the ghetto accomadations doncha know......remember from the movie white men can't jump.......its not about winning, but its really all about how you look.........ha ha ha..........

karzai_luver's picture

white men can't jump??? u shur homey?

 

How do they git into them thar jacked 4X4 mudders to hit the S'bucks???

wanklord's picture

Americans are a bunch of stupid animals easy to manipulate and subdue.The sooner the US economy collapses the better, so these brutes will finally learn NOT to live beyond their means.

Ahmeexnal's picture

So it is Al-Abama the state to become the birthground of the north american marxist caliphate.

Mr Lennon Hendrix's picture

Martha's polishing the brass on the Titanic; it's all going down, man.

High Plains Drifter's picture

oh come on numbnutts, you don't think that is funny?  a man driving around in a hummer, while living in a run down ramshackle house?  isn't that the way we all are in reality?  we all try to be something we are not? its called keeping up with the jones's and while we do this our nation is destroyed. black people bought into it, just like everyone else. it has been decades now, since the leadership of most of the southern cities fell into the hands of black people. has anything improved?  nope. will anything ever improve? nope. are they more crooked than whites?  nope.  frankly i am not in the hate department, myself. but i really get tired of diversity for diversity's sake etc.......i know full well whose idea all of this was and why all of this happened and was implemented. so if you yourself have a problem with my humor while i see things that happen, no matter at whose expense it is, then you can take a long walk on a short pier as far as i am concerned. and that , is my big ten four........good buddy........

delacroix's picture

fried chicken, watermelon, cadillac car, we ain't as dumb as you think we is

nodhannum's picture

What kind of fried chicken?  Doesn't sound half bad.

Republi-Ken's picture

BLAME IT ALL ON 300 YEARS OF SLAVERY...

Dose Conservatives screwed America back in 1565...

And every City now pays the social cost of that.

Republi-Ken's picture

BLAME IT ALL ON 300 YEARS OF SLAVERY...

Dose Conservatives screwed America back in 1565...

And every City now pays the social cost of that.

Republi-Ken's picture

BLAME IT ALL ON 300 YEARS OF SLAVERY...

Dose Conservatives screwed America back in 1565...

And every City now pays the social cost of that.

Republi-Ken's picture

BLAME IT ALL ON 300 YEARS OF SLAVERY...

Dose Conservatives screwed America back in 1565...

And every City now pays the social cost of that.

Republi-Ken's picture

BLAME IT ALL ON 300 YEARS OF SLAVERY...

Dose Conservatives screwed America back in 1565...

And every City now pays the social cost of that.

Republi-Ken's picture

BLAME IT ALL ON 300 YEARS OF SLAVERY...

Dose Conservatives screwed America back in 1565...

And every City now pays the social cost of that.

trav7777's picture

yes, because the non-slaves in africa were doing so well at, like the time of Aristotle and shit.

It's ALWAYS whitey's fault, forever.  Every failure of a black is the fault of white people.  Forever.

Lednbrass's picture

In theory I support your right to be a complete fucking moron but you really do abuse the privilege.  Whether you are a white guilt loser or entitled black loser doesnt matter, youre pretty much an oxygen thief either way.

bob_dabolina's picture

The municipal bond market is racist. It must be run by a bunch of KKK leaders.

Long-John-Silver's picture

If the KKK was still in charge of Jefferson County in Alabama you would not have this mess. The real problem is all the NAACP members running a corrupt government in Birmingham, AL. You see, all the theft and corruption has bit them on the ass and is dragging them off to the woods like a pack of wild dogs.

LowProfile's picture

Can you blame them?

Hey, they finally got a piece of the pie...  Right before the ponz implodes.

NumberNone's picture

Country rubes getting chump change bribes from carpetbaggers.  The story that started it all for those that don't know the background.  

http://www.rollingstone.com/politics/news/looting-main-street-20100331

Mr Lennon Hendrix's picture

And Meredith makes an O face.

knukles's picture

My thought pattern as well.
Works out peachie keen neato for everybody concerned.  To wit;

Meredith get to say; "See I toldja so." even though in this case she's right (bankruptcy) for the wrong reason (fraud, malfeasance, pay to play, etc.).

The politicians get to say; "See, we toldja, it's not the revenues, it's the banks."  Specious at best, but a good excuse as any.

The banks get to say; "See, it was all Morgan's fault, not us".

Morgan says; "Yeah, we admitted it and settled already, so piss off, mate."

And the resident of Jefferson County says; "Well fuck me, nothing ever changes. It should, the banks, politicians, lawyers, everybody should be skinned and hung.  But we really, deep inside never thought that anything would get fixed."

The rest of America says either; "Huh?"
or; "See I tioldja so.  The politicians are thieves and should be....tthefuckeveryourchoicepunishmentisinserthere.

And all that ends is not necessarily well, ever.

Cognitive Dissonance's picture

LOL

Just because someone isn't right....now....doesn't mean they aren't right eventually. And if I remember correctly Meredith was talking about severe muni problems over a span of time, not that very instant. Of course, the Ponzi must declare anyone who isn't singing the praises of the Ponzi to be a heretic of the most evil and vile kind.

The Ponzi is (eventually) dead, long live the Ponzi. And long live Meredith for that matter.

Blano's picture

She's right already IMHO.  Lots of them are bankrupt, just like the US is when you look at the numbers.  It's just all the can kicking that keeps them technically solvent.

CH1's picture

Where do you think all that liquidity is going? It's keeping lots of small government orgs alive.

equity_momo's picture

I reckon she'd be a right go-er.

justanotherday's picture

US of B: The United States of Bankruptcy.

 

sitenine's picture

Debt is an American tradition.

justanotherday's picture

Certainly is now. The US isn't what I thought it was. F'ng mess.

Cognitive Dissonance's picture

I gotta ask.

What did you think the US was? Not picking on you since we all have/had our illusions at one point or another.

Blano's picture

I'll bite if you don't mind.

I think it WAS the shining city on the hill at one point, or could have been especially during the Cold War.  At least that was my belief, the goal to strive for.  Not anymore.

Chuck Walla's picture

And then the politicians discovered they could buy votes with other people's money. And its been down hill since.  Everybody's a victim and deserves a piece of someone else's paycheck.  How that logic ever worked I never did understand.  And the victimizing Sugar Daddy's hold ill gotten power by stealing from some and giving to others. Oh, and a little bit "sticks" along the way, like Charlie Rangel's Million Dollar realestate portfolio built on a Congressman's salary. Incredible money management skills there, Chaz!

PulauHantu29's picture

Let them reorganize in Bankruptcy....gets rid of all the rottenness out there....it'sa  fresh start over so we can move on to the future.

Mr. Mandelbrot's picture

Yes.  That is what I want as a resident of Jefferson County.  The article seems to suggest all of Jeffco's financial woes stem from the $3.2 billion sewer debt, but that is only part of the story.  As for the sewer debt mess, (I'm going off of memory on these numbers, but they should be pretty close) officials looking back into what got us into it have determined that the updated sewer system, which was mandated by the Feds at the EPA, should have only cost the county $900 million.  The other $2 billion plus was squandered through overcharging contractors who bribed corrupt local government officials (Google Gary White) and fat commissions to the financiers (JP Morgan the most notable) who sold the county auction rate bonds that went no bid during the financial crisis leaving the county paying a ridiculous double-digit interest rate overnight.  Two dozen or so government officials and contractors are now serving prison sentences for all of the shenanigans, yet the people and businesses here are still stuck with the bill.  Jefferson County got screwed in every orifice at the same time.  Currently, sewer rates are outrageous and run 250% of the water charges (if you use $20 in water, you're charged $50 for sewer for a total bill of $70).  The latest plan to increase revenue is to charge those with septic tanks a $400/year "non-user fee," which I won't be paying.

The other half of the story has to do with an "Occupational Payroll Tax" that was recently ruled unlawful by the Alabama Supreme Court.  Instantly, an already cash-strapped county lost 30% of its income.  Overnight, they had to cut a large portion of county employees including closing all of the satellite DMV's throughout the county.  Anything to do with drivers licenses, car tags, titles, property tax, etc., etc. now has to be done at the main branch in downtown Birmingham.  I just had to renew my drivers license and the line was almost four hours!  We are definitely in a financial morass--some of it self inflicted because a bunch of dumbasses down here keep electing crooks, and some of it a result of the soulless predators at JP Morgan ensnaring us with auction rate securities.  Come what may, but Jeffco should default and put (at least some of) the consequences of the sin on at least one of the sinners (JP Morgan) . . .

Tangurena's picture

Don't forget that the EPA required a sewer system that met specs no other sewer system has ever had to meet: exactly 0% of rainwater runoff could make it to the river without going through the sewage treatment plant. It would have cost a lot less to stand up to them and just say "no".

blunderdog's picture

They should've known that whole indoor-plumbing thing was overrated.

The Architect's picture

"Bentley said his view of bankruptcy -- an unpopular option because it is expensive"

Bankruptcy = Expensive

Indeed.

Debt Rolling's picture

Postponing bankruptcies is a risky bet on an economic pick-up.

If this economic "recovery" does not come, then you're worse off than before (thus the expression "buying time"). Detroit learnt it the hard way. Betting on a miracle rather than trying to equilibrate your budget is sending you right to the grave. 

I'll remember everybody that when the "decision makers" in 2008 unleashed the greatest amount of government support and intervention in the history of mankind, they were expecting results for this horribly risky bet to pay off. Unfortunately, the "recovery" didn't come: now is the time to pay the colossal bill, because all bullets have been fired.

The "muni massacre" will come, eventually, and then the "federal massacre". In 2012, 2013 or 2014, I don't know, but my experience teaches me that it often comes when people expect it the least, and when nobody believes in it anymore.

max2205's picture

Nope, sorry, Fed has to go first because they'd never let them blow up unless their hands were tied

Iam_Silverman's picture

"If this economic "recovery" does not come,"

But I thought I read in Barron's that we are now firmly in our second year of recovery!  Do ya' think they might have called it wrong?  Unless of course the "recovery" was based on when the bankers overly generous bonus pool was once again returned to record levels.

StychoKiller's picture

They had a choice:  "Do what is easy or do what is right". Guess which was their choice.

El Oregonian's picture

It's hard to tell which one is sewer...

Blano's picture

Geez they've been draggin this one out forever seems like.