Officials of Jefferson County, Ala., and the state are negotiating with creditors for another week while they try to avoid a $4.1-billion bankruptcy filing.

All it took to reach this point is bad spending on a sewer system overhaul, bad financing and changing of the county's debt structure.

If county officials decide to seek protection from creditors, it may become the biggest municipal bankruptcy ever. Jefferson County includes Birmingham, Alabama's biggest city.

The Jefferson County Commission and creditors agreed July 28 to postpone until Aug. 4 a decision on filing after creditors came in with a last-minute proposal that both sides—along with a court-appointed receiver for the trouble-wracked sewer system and the state’s finance director—are negotiating.

Participants will not comment specifically, but it involves creditors shaving about $1 billion off the total debt, which would be restructure with state backing, and sewer ratepayers absorbing only single-digit increases.

“There is a very attractive offer on the table,” says John S. Young Jr., former president of American Water Works Service Co. who was named receiver in September 2010.

But, he cautions, “this agreement in concept is the first of several steps that will include legislative action.

If the agreement is reached, Gov. Robert Bentley (R) will call a special session of the legislature “as soon as September” and have the bills passed within a week, says David Perry, state finance director. Both Perry and Bentley have taken an active role in negotiations in recent months after a request by the commission, says David Carrington, commission president.

The biggest chunk of the debt is $3.2 billion owed for an EPA-mandated overhaul of the sewer system, including nine wastewater treatment plants, under a 1997 consent decree. The county paid, through 2007, more than $1.2 million in penalties for the initial and later overflows, the EPA says.

It also led to a bribery and corruption scandal that ended up with convictions of four county commissioners, six other county employees, a banker, a lobbyist, five contractors and nine of their officers or employees.
The firms involved are Civil Engineering Design Associates, Dougherty Engineering, Pugh Construction, Rast Construction and U.S. Infrastructure.