Jefferson County, Ala., commissioners named two members to negotiate personally with creditors, bypassing a court-appointed receiver, as they again delayed a Chapter 9 bankruptcy that would be the nation’s largest.

In a unanimous vote on Aug. 12, the five commissioners voted for David Carrington, commission president, and James A. "Jimmie" Stephens, finance chairman, to start meeting personally with the creditors, which include J.P. Morgan Chase & Co., to reach a settlement on $3.2 billion in sewer bonds by Sept. 16.

County debt for school and general obligation funds would bring a bankruptcy to more than $4.1 billion, about twice as large as the record $1.7 billion filed by Orange County, Calif., in 1994.

The votes, which would reject the latest proposal from creditors and delay a bankruptcy filing, came after Alabama Gov. Robert Bentley (R), who has been actively involved in efforts to reach a settlement, asked the commissioners to take more time.



“The only thing that is unacceptable is a settlement that puts an unbearable burden on the customers of the system and thus stymies future economic growth for the county. The underlying foundation of any agreement has to be twofold. One, rate increases must be reasonable, and, two, the settlement has to be better than what we believe we could attain by Chapter 9 bankruptcy,” Stephens said.

Both Stephens and Commissioner Joe Knight are concerned that a mandatory sewer hookup for residents with failed septic systems would create a burden on the 5,000 homeowners who lost their houses during the April tornadoes.

“We’re not afraid to file Chapter 9,” Knight told commissioners during the meeting. Chapter 9 is a provision in the U.S. Internal Revenue Code that allows for insolvent municipalities to re-organize, rather than liquidate.

“The governor has asked us to allow more time. I’m not willing to allow more time unless we are involved in the negotiations,” Knight said. “If we’re going to go forward, it’s going to be us, our commission.”

Referring to published reports that a settlement had been reached already, Knight countered,
“We don’t have a deal,” and then he loudly and forcefully repeated it.

His motion to reject the offer won unanimous approval.

 “It’s time this commission took ownership of this debt crisis,” Stephens said before another unanimous vote to reach a settlement by next month.

In a meeting with reporters following the session, Carrington echoed a question, saying, “How close was the county to filing Chapter 9? Very, extremely.”

"[With the vote] we’re probably closer to a settlement because the decision-makers are talking to decision-makers,” he said.



The commissioners had met only briefly before going into executive session for more than four hours, returning to discuss, point by point, the creditors’ proposal, submitted on Aug. 11.

The offer, with more than $1 billion in concessions on the county’s sewer debt, included:

• Refinancing $2.3 billion in principal, with $233 million going to a debt-service reserve; $23.3 million for insurance costs and $2.07 billion to redeem all outstanding sewer warrants based on negotiated concessions. The sewer warrants have not been paid since 2008.

• Creating an independent governmental utility service corporation (GUSC) to issue the $2.3 billion in refinancing as well as own and operate the sewer system. This strategy would require state legislation, which Bentley would support, according to a memo filed by John S. Young, the receiver who has been negotiating on behalf of the county.

• Four scenarios for annual rate hikes, ranging from 6.1% to 7.8% in years one through three, then 3% annually for the following 37 years. A low-income assistance program is included.

“There were areas of the offer that were acceptable, other areas that were close and some that were totally off base,” Stephens said in an e-mail to ENR.“The shortest distance between two points is a straight line, and we’re putting a straight line between the commission and each individual creditor,” Carrington said, adding that future creditor meetings would be one on one, instead of in a group.