BIRMINGHAM, Ala.. (Reuters) - Alabama’s Jefferson County could decide on Thursday whether to accept an offer from creditors to settle its sewer debt or pursue what would be the largest municipal bankruptcy in U.S. history.
The county began a rare executive session at 1 p.m. (1800 GMT) and it was likely to last up to four hours, County Commission President David Carrington said before commissioners went into a closed session.
The county was due to hold the meeting last Thursday but postponed it when creditors made a last-minute response to the county’s initial offer to settle a bond debt of $3.14 billion.
One issue dividing creditors, including JP Morgan Chase, and the county is how much the 660,000 county residents should pay in sewer rates, according to county Finance Commissioner Jimmie Stephens.
Residents already pay some of the highest sewer rates in the country and some fear several years of steep increases may be part of a deal to refinance the debt. County commissioners argue they will resist any steep rises.
“The key to this thing is economic development. At what (sewer) rate increase will economic development be harmed and future development become toxic?” Stephens told Reuters.
“I don’t think the creditors have this in mind. They want to get their money and get out. This can create an atmosphere so toxic that everyone will want to get out,” he said, referring to a possible exodus of residents if rates rise too fast.
Municipal bond markets are watching the county’s situation closely and any move to bankruptcy could shake the $2.9 trillion market. It would have major repercussions for Alabama because the county’s largest city, Birmingham, is an economic engine for the state.
Carrington told the meeting the county would make a decision but declined to say what it would be. Earlier, he said one option was an extension to a “standstill” agreement to allow for further talks.
“It would be premature of me to say that I am leaning toward any one of the three options over the others at this point. Everyone will put information on the table. That’s the reason you accept feedback,” he told Reuters.
The county’s debt is rooted in corruption among local politicians and business leaders that has seen 22 convictions. It also stems from deals made with financial institutions that sold the county a disastrous series of bond swaps in the mid-2000s to refinance an upgrade to its sewer system.
Interest on those swaps spiraled in 2008 when the bond market fell sharply triggering the crisis. The county faces a separate shortfall in its general fund and general fund warrants totaling about $1 billion.
Outside the Jefferson County courthouse where the meeting took place a handful of concerned ratepayers held up signs and demanded the commissioners pursue bankruptcy: “Flush JP Morgan down the toilet not ratepayers,” one sign read.
“The tragic thing is that people are the ones who end up paying for all the lying, thievery and cheating that the politicians have engaged in the last few years,” said Keith Mims, a salesman.
If the county pursues Chapter 9 bankruptcy, it will not be exempt from its bond obligations but would likely face a further period of talks with creditors over refinancing the debt, analysts and county leaders say.
Editing by Tom Brown and James Dalgleish