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Jefferson County Panel Nixes Bankruptcy

By Associated Press

Birmingham AL – Commissioners in Alabama's most populous county voted against filing the largest municipal bankruptcy in U.S. history Tuesday and the federal government refused to guarantee the county's $3.2 billion sewer bond debt.

The Jefferson County Commission rejected a resolution to file for bankruptcy on a 3-2 vote during a meeting that lasted less than 10 minutes.

Afterward, the governor's office said the Treasury Department had refused to intervene in the looming crisis, which started when the county made risky deals to pay for massive sewer system improvements after being sued over failure to meet federal clean water standards.

Officials say the area's water is safe after 12 years of work, but payments on the county's debt ballooned when the mortgage crisis struck and banks began tightening up on lending.

The majority of commissioners want to continue seeking an alternative to bankruptcy, which may involve refinancing the huge debt, budget cuts, sewer rate increases and a negotiated reduction of the amount owed to creditors.

"The only way Jefferson County can grow and prosper is to settle this short of bankruptcy," said Bettye Fine Collins, the commission president. Officials may have to slash spending by as much as $30 million, or nearly 5 percent of the county's $655 million budget, she said. The county could reduce services in its roads and sewer departments and close some county offices, she said.

But Commissioner Jim Carns said bankruptcy is the only realistic option, partly because Alabama's antiquated Constitution requires legislators to approve possible solutions, including tax hikes, and such approvals are unlikely.

"Sooner or later people are going to realize that bankruptcy is the only way," Carns said.

Gov. Bob Riley, who was brought in to the debt negotiations by the commission, last week asked the federal government to guarantee the county's debt, a move that could have resulted in lower interest rates and payments.

But Riley's office said the Treasury Department had refused to include Jefferson County in a $700 billion bailout package approved by Congress, deciding that no municipalities would be allowed to participate.

A bankruptcy filing by the county, which is home to 658,000 residents and includes Birmingham, would nearly double the previous record of $1.7 billion, set in 1994 by Orange County, Calif.

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