2011-11-09

Jefferson County chooses to file bankruptcy

Jefferson County, Alabama, Votes to Declare Biggest Municipal Bankruptcy
A provisional agreement with creditors that commissioners approved in September included $1.1 billion in concessions and called for sewer-rate increases of as much as 8.2 percent for the first three years. The county, which encompasses the state’s largest city, Birmingham, couldn’t get signed commitments from creditors, Commission PresidentDavid Carrington said today. In addition, the 25-member legislative delegation for the county was unable to unite behind bills needed to implement the tentative settlement.
Notice the theme here. There was a deal on the table. Some of the politicians didn't want the deal, as this October 13 story shows: Jefferson County Democratic Lawmakers May Derail Debt Deal
The Democratic half of the Alabama Legislature’s 25-member Jefferson County delegation opposes a settlement with holders of $3.14 billion in debt, throwing the deal in doubt, according to three lawmakers.
What can explain why lawmakers, with a deal on the table, would toss it away and declare bankruptcy? It doesn't hurt that the deal was politically unpopular, including tax hikes to pay for it, but then, can you think of a bailout anywhere that is popular? That's why the last paragraph of this CNN story, quoting an analyst, is so completely wrong: Jefferson County, Alabama to file for largest municipal bankruptcy
Wilson White, an expert on municipal bonds who has written several books on the subject, said the situations in Harrisburg and Jefferson County aren't cause for concern about the wider muni-bond market. "Both relied on unusual financing agreements that got them into trouble," he said. "It isn't an economic problem -- it's a financial problem, because they did some things that they're sorry they did."
No. It's a social mood problem. It doesn't matter how they got into debt, what matters is that more governments at all levels will be pushed to the brink as social mood takes markets lower, and this will also increase public opposition to bailouts and deals, making bankruptcies more likely.

No comments:

Post a Comment