Bankruptcy Stigma Now Plagues Detroit, JeffCo Official Says

BRADENTON, Fla. – Officials overseeing Jefferson County, Ala.’s municipal bankruptcy are commiserating with Detroit over its bankruptcy filing, and say they understand the challenges and stigma it brings.

Jefferson County filed for Chapter 9 bankruptcy in November 2011 with $4.2 billion of debt. Of that, $3.1 billion of debt was related to the county’s overleveraged sewer system, which has a dedicated revenue stream.

Detroit filed for bankruptcy on Thursday citing about $18 billion of debt. More than $11 billion is believed to be unsecured.

Though Detroit succeeds Jefferson County with the largest municipal bankruptcy filing in the country, County Commissioner Jimmie Stephens said the distinction is not as important as the stigma it brings.

“The amount of money involved in a municipal bankruptcy such as ours is not as relevant as the stigma circulating around it,” he said. “The government is going to continue to operate, and Detroit is going to continue to operate.

“The stigma surrounding Detroit and the difficulty of it being able to maintain its image and increase commerce in the future is a challenge they face as well as Jefferson County.”

Stephens said that even though the population of the county and Detroit are similar, he believes the Motor City faces higher costs and a far more complex situation. Jefferson County has about 660,000 residents and Detroit has 701,475, according to the U.S. Census Bureau.

“If you do the cost of debt per person it is staggering,” Stephens said. “Take [Jefferson County’s] $4.2 billion of debt and divide by 660,000 and it’s a pretty good amount. Do the same with [Detroit’s] $18 billion - and wow.”

Another difference between the county and Detroit is pension funding. Detroit has billions in unfunded pension obligations while Jefferson County’s pension is “fully funded,” Stephens said.

“Detroit‘s challenges are far different from Jefferson County’s,” said Jefferson County Commission President David Carrington. “Just like two divorces are not the same, two bankruptcies are not as well.

“While Detroit’s debt is significantly higher than Jefferson County’s, it appears to me, as an outsider looking in, that the issues are narrower, which might lower Detroit’s anticipated monthly legal and professional fees.”

County officials estimate that they have spent under $15 million on legal fees in the 18 months since filing the Chapter 9 petition.

Jefferson County has an aggressive schedule in the months ahead and to exit bankruptcy this December – a year ahead of the time originally estimated for the case to be resolved. Detroit’s emergency manager, Kevyn Orr, has said his goal is to have Detroit emerge from Chapter 9 by late summer or early fall 2014.

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