JeffCo Bankruptcy an Ugly Story
June 26, 2013 12:28 PM
Jefferson County, Ala., is poised to emerge from a historic Chapter 9 bankruptcy marked by corruption and poor governance. (Thinkstock)
To settle a Clean Water Act lawsuit, Jefferson County, Ala. signed a consent decree in 1996 to consolidate and repair the regional sewer system. Over the years, costs escalated, the county financed and refinanced debt, and corruption plagued the overleveraged system. (Bloomberg News)
Former Jefferson County commissioner Larry Langford, who orchestrated the county's failed sewer financings, is serving a 15-year prison sentence on his 61-count conviction for bribery, money laundering, fraud, and other charges. More than two dozen people involved in sewer construction or financing have been convicted or pled guilty in the scandal. (Bloomberg News)
Just 22 days after taking office in November 2011, Jefferson County Commission President David Carrington faced a $70 million general fund loss from an occupational tax struck down by the court. By mid-2011, talks with sewer system creditors seemed positive but broke down. On Nov. 9, 2011, Carrington signed court papers that led the county to file the largest municipal bankruptcy in U.S. history.
A "significant, precipitating cause" of Jefferson County's bankruptcy filing was the loss of an occupational tax supporting the county's general fund, bankruptcy judge Thomas Bennett said in a Dec. 19, 2012 ruling. The tax was struck down by state courts, and the Alabama Legislature failed to authorize a replacement tax, crippling the county general fund. (Thinkstock)
Municipal Market Advisors' Matt Fabian advised investors to shy away from Alabama bonds several times because the state refused to help Jefferson County. "The state has little regard for local bondholders or helping local credits work themselves out," he said in June 2011. (Bloomberg News)
JPMorgan settled securities fraud charges without admitting guilt in 2009 for payments its bankers made to insure that the firm underwrote Jefferson County's sewer warrant deals and became a swap counterparty. The bank paid a $75 million fine and forfeited $647 million of swap termination fees. JPMorgan became the county's largest creditor when the securities failed, and agreed accept a much larger haircut than other bondholders in a proposed bankruptcy settlement. Two of its former bankers are awaiting trial on SEC charges stemming from the sewer financing.
