Jefferson County in Alabama has taken a major step to refinance its debt that has caused the county’s financial breakdown. Refinancing through bankruptcy will save Jefferson County hundreds of millions of dollars, allowing the county to emerge from bankruptcy after a few months. With over $4 billion in debt, Jefferson County is the center of the largest United States municipal bankruptcy.
As part of the settlement deal determined by its bankruptcy lawyers, Jefferson County is expected to pay 60 percent of their sewer-related debt by the end of the year.
Jefferson County Reaches Settlement
Bankruptcy lawyers for Jefferson County are expected to reveal further details about the bankruptcy deal soon in Birmingham, AL. The deal that the bankruptcy lawyers achieved covers approximately $2.4 billion of Jefferson’s County debt, all of it related to the county’s sewer problems.
The timeline of Jefferson County’s debt problems goes back to before the 2008 Recession. The debt began in 1996, when a federal judge ordered Jefferson County to repair and expand their sewer system. A study revealed that the sewers were faulty, polluting nearby rivers, streams, and grounds. Jefferson County borrowed billions of dollars to build and repair sewers. Once the recession hit, the debt exploded into complex financial derivatives that plunged Jefferson County into default. Aside from the mounting debt, the county also lost its occupational taxes, nearly a fourth of the county’s revenue stream.
Of the $4 billion debt that the bankruptcy lawyers dealt with during the filing, approximately $3 billion of the county’s debt is related directly to the sewer project. JPMorgan is expected to forgive $824 million in debt, bringing the total settlement with the bank to $1.56 billion.
Because governmental bankruptcies are rare, eyes have been kept on Jefferson County and its bankruptcy lawyers to follow the legal precedent that it will set. Sewer fees are expected to rise by 7.41% for county residents.