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Ala. county votes to settle debt, avoid bankruptcy
Largest Ala. county approves framework for debt settlement rather than file record bankruptcy
By The Associated Press

BIRMINGHAM, Ala. (AP) ' Leaders of Alabama's largest county Friday approved a framework for a settlement with Wall Street over $3.1 billion in debt from a sewer system overhaul gone bad, avoiding the possibility of immediately filing the largest municipal bankruptcy in U.S. history.

Jefferson County Commissioners voted in Birmingham to settle with Wall Street investors led by JPMorgan Chase & Co.

State lawmakers now must get involved, and county commissioners said bankruptcy was still possible.

The main effect of the deal for county residents would be higher monthly bills for sewer service.

The settlement proposal includes Wall Street agreeing to forgive about $1 billion in debt, the county refinancing about $2 billion, and a series of annual sewer rate increases.

Jefferson County has been trying to avoid filing bankruptcy over the sewer system debt since 2008. Its problems stem from a mix of outdated sewer pipes, the economy, court rulings and public corruption.

A bankruptcy filing in this case would have overshadowed the record one filed by Orange County, Calif., in 1994 over debts totaling $1.7 billion.

JPMorgan welcomed the agreement. "We are encouraged by the County's decision to refinance the sewer debt and look forward to working toward a successful resolution in the coming months," a bank spokesman said.

Jefferson County has about 658,000 residents and is home to both Alabama's largest city, Birmingham, and its medical and financial centers. A bankruptcy filing by Jefferson County would far exceed the current record for a municipal bankruptcy, set 17 years ago by Orange County, Calif.

Jefferson County financial woes result from a mix of outdated sewer pipes, the economy, court rulings and public corruption.

A federal court forced Jefferson County to begin a huge upgrade of its outdated and overwhelmed sewer system to meet federal clean-water standards in the '90s, and officials used bonds to finance the improvements. Outside advisers suggested a series of complex deals with variable-rate interest that were later shown to be laced with bribes and influence-peddling.

Loan payments rose quickly because of increasing interest rates as global credit markets struggled, and the county could no longer afford its payments. Meanwhile, a string of elected officials, public employees and business people were convicted of rigging the transactions that helped put the county in so much trouble.

Those convicted in the graft investigation include then-Birmingham Mayor Larry Langford, a former president of the Jefferson County Commission; and ex-Commissioner Chris McNair, whose daughter was one of the four black girls killed in an infamous Ku Klux Klan church bombing in Birmingham in 1963. Langford and McNair both are in federal prison.

The sewer debt isn't Jefferson County's only problem, though. It already has laid off about 550 of its 2,300 workers and reduced government services because courts struck down an occupational tax and business license that provided more than $74 million annually for its operating budget. The county has closed satellite offices and reduced hours, and long benches now line a hall in the main courthouse where residents often have to wait hours for the simplest of transactions, like getting a new car tag.

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