The bankruptcy filing by Jefferson County could ultimately hinge on a ruling by the Alabama Supreme Court.
Federal bankruptcy Judge Thomas Bennett said in a recent hearing that the county qualified to file for Chapter 9 under the bankruptcy code.
However, attorneys argued that the county may not be qualified under Alabama law, which requires local governments to have bonds or refunding bonds outstanding to adjust debts using Chapter 9 bankruptcy.
A voter referendum is required to sell bonds in Alabama, but not warrants. Jefferson County has $4.23 billion of outstanding warrants.
Bennett ordered the county and its creditors to file additional briefs by Dec. 28 with suggested wording that he may, or may not, submit to the state Supreme Court to determine if Alabama law authorizes warrants as a debt that qualifies for bankruptcy.
The judge is still considering if he will allow the state-court appointed receiver of the county’s sewer system to remain in control of its operations and finances as the bankruptcy proceeds.
He recently threw out any arguments about the receivership based on the Rooker-Feldman Doctrine, which prevents a federal court from undoing judgments of a state court, or the Johnson Act, which prevents a federal court from issuing a ruling that affects rates charged by a state-chartered utility.
The Jefferson County receiver, John Young, has notified Bennett that he most likely will appeal that ruling.
Jefferson County filed the largest-ever municipal bankruptcy on Nov. 9 after failing to reach a settlement to restructure the sewer warrants.
The County Commission president, David Carrington, testified Dec. 15 that some of the local state lawmakers supported filing for bankruptcy over restructuring the sewer warrants.
He also said that the county has spent $10 million on legal fees since its variable- and auction-rate sewer warrants collapsed in early 2008.
