Crucial Negotiations This Week to Impact

Large Potential Municipal Bankruptcy Filing

In discussions many debt-laden municipalities will be monitoring as a potential template for their own woes, officials from a community spiraling toward the largest U.S. municipal bankruptcy in U.S. history were set to negotiate in-person with creditors for the first time.

Officials from Jefferson County, AL scheduled a trip to New York City to meet with a group of creditors the municipality owes for a sewer renovation project that left it with crushing debt. It is estimated that more than $3 billion in the county's debt is tied to a sewer rehab project there several years ago. About two weeks ago, creditors seemed to throw at least a temporary lifeline to Jefferson County in the form of a renegotiation plan. However, county officials and the creditors were reportedly hundreds-of-millions of dollars apart on terms.

Jefferson County officials also have made it known they won't take any deal that prevents them from a near-future Chapter 9 filing. Perhaps it's a negotiation tactic or perhaps it's that they've received less resistance from state officials about a potential filing than state governments in Pennsylvania and Rhode Island of late. Alabama Gov. Robert Bentley noted earlier this summer that Chapter 9 was "a very strong possibility."

Local media in Harrisburg have reported that city council members in the Pennsylvania capital are closely watching the Jefferson County-creditor negotiations fallout. Council members, faced with the likelihood of a default stemming from a failed trash incinerator project, have rejected both a state debt plan and a subsequent plan from Harrisburg Mayor Linda Thompson plan, hoping for a better option before passing the point of no return. They've noted that city residents/taxpayers would have to feel too much of the brunt for others' past mistakes and have stood against solutions such as the outright selling the incinerator operation and city-owned parking structures, both designed as ways to avoid filing a bankruptcy that could raise the cost of borrowing for many similar-sized state communities.

The most recent Chapter 9 municipal bankruptcy filing in the United States, in Central Falls, RI, largely was caused by a growing financial problem for cities around the nation: the high cost of entitlements.

Brian Shappell, NACM staff writer