Municipal bankruptcy of Alabama's Jefferson County is the largest in American history. But will the county surrounding Birmingham, Ala. emerge stronger from its municipal bankruptcy?

By Jim Van Anglen, Associated Press, Phillip Rawls, Associated Press /

November 11, 2011

The biggest municipal bankruptcy in American history could leave residents of Alabama's most populous county paying astronomical rates for public services performed by a skeleton crew of county workers. Or it could simply mean tightening the belt another few notches, depending how much of Jefferson County's $4.15 billion debt will have to be paid.

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It's even possible that, just as companies have benefited from bankruptcy, that the county surrounding Birmingham will emerge stronger for it.

For now, much is uncertain for following the county's Chapter 9 filing on Wednesday. The full impact on its 658,000 resident's won't be clear until after a judge approves the move at a hearing next month and local officials negotiate a plan with creditors for adjusting its debts. The outlook among some officials was grim a day after the filing, while others defended the move.

The receiver appointed to run the sewer system's finances said he expects residents to see significantly higher sewer rates, while the lone county commissioner to vote against the bankruptcy predicted that damage to the county's image could drive away businesses and residents, lowering its tax base. An investment researcher who studies government finances said that Jefferson County could have a harder time borrowing money to build infrastructure, and the pain could spread to other cities.

Municipal bankruptcy filings elsewhere have also led to higher taxes, pension reductions for public workers and spending cuts on schools, roads and other infrastructure.

"We are in uncharted territory. Nobody has ever done anything like this on this level," said Jefferson County Commissioner George Bowman, who opposed his four fellow commissioners in the vote.

Commission President David Carrington said Thursday that unrelated fiscal problems already were necessitating cuts in services and hundreds of jobs, and the bankruptcy filing would actually keep those from being as deep. He wouldn't provide specifics.

Because of the past layoffs and office closings, residents already face hours-long lines for services such as renewing their car tags. Bowman said the county has already cut 500 jobs through layoffs and attrition in the last six months was likely to get rid of 1,000 regardless of the bankruptcy.

Some were already beginning to worry about how the bankruptcy could affect their wallets. Lifelong Birmingham resident Charlie Bell said his monthly sewer bill recently went up to $27, and he's fearful for what's next.

"I've never quite seen it this bad, as long as I've been alive," the 56-year-old said of the county's fiscal woes.

The predicament is the culmination of years of problems. The county's debt ballooned after a federally mandated sewer project was beset with corruption, court rulings that didn't go its way and rising interest rates when global markets struggled.

The county had been working since 2008 to avoid the cost and embarrassment of the bankruptcy filing. There appeared to be a breakthrough two months ago when the county and its creditors gave preliminary approval to a settlement.

But as the details were worked out, the sides couldn't come together on how to pay about $140 million of the total, said Commissioner Jimmie Stephens.

Also weighing in the decision was a dispute between the commission and the court-appointed receiver, which continued to play out Thursday. The commission asked the bankruptcy judge to remove John Young Jr. as receiver and let the county run the sewer program. Young filed court papers Thursday saying the federal court can't remove him because he was appointed by a state court judge to oversee the insolvent system.

Young said the bankruptcy would result in sewer rate hikes that could be double what the dashed settlement would have required. He said politics was a factor in the commission's decision to file bankruptcy.

"Politicians don't want to be attached to rate increase and tax increases, and both were going to be necessary," he said.

But an influential money manager of retirement funds for state employees said many suspected thebankruptcy was coming because even with $1 billion in concessions under the proposed settlement, the debt was still too big for the sewer system to cover based on its annual revenues.

"The debt was so huge you didn't have any options," said David Bronner, CEO of the Retirement Systems ofAlabama.

He said a bigger factor in the county's cutbacks will continue to be the shortage of money caused after an occupational tax was struck down in 2009.

Some outside observers said bankruptcy was the right move.

Chicago bankruptcy attorney James Chatz, who wasn't involved in the Alabama case, said the filing allows all sides to have a moment of calm and then try to reach an agreement. In the meantime, Jefferson County can continue to run its operations and pay its bills.

"I think there is a deal to be made over a long, long period of time," he said.

The size of Jefferson County's bankruptcy overshadows the one filed by record-holder Orange County, Calif., in 1994 over debts totaling $1.7 billion. Pennsylvania's capital city of Harrisburg recently sought bankruptcyprotection under similar circumstances in a federal filing that listed about $458 million in creditors and claims.

To try and keep the bankruptcy from hurting its image further, Gov. Robert Bentley said Thursday he would be working to do damage control with the companies that had loaned Jefferson County money.

"We want to make sure the Jefferson County bankruptcy won't hurt Huntsville and other Alabama cities when they try to borrow money," he said.

But Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management in Oak Brook, Ill., said the bankruptcy will make it harder and more expensive for Birmingham and Jefferson County to borrow money, and it could affect other cities and counties in Alabama.

"People will be looking at the state in a more careful eye," he said.

Still, some residents were sanguine. Hollis Wormsby said he felt like the county had no choice but to file forbankruptcy and that its decaying infrastructure was going to necessitate fee increases one way or another.

"This is happening in every major city in the country. Fees are going to go up," he said Thursday.

William Mills, a lawyer who lives in Jefferson County, said bankruptcy is never desirable, but the county must get the problem solved. Its debts aren't going to go away.

"We need to get this behind us," Mills said.

http://www.csmonitor.com/Business/Latest-News-Wires/2011/1111/Municipal-bankruptcy-in-Alabama-largest-in-US-history

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The embattled securities firm MF Global moved millions in missing client funds last week and tried to avoid detection as the company slid toward bankruptcy last week, a regulator said Wednesday.

Lessons from MF Global's unraveling The unraveling of MF Global provides a stark reminder of why we need to implement financial reform legislation

MF Global, which filed for bankruptcy protection Monday, is the eight-biggest U.S. bankruptcy and the first major Wall Street firm to fail because of bets on European debt.

Article is Continued at �� http://www.csmonitor.com/Business/On-the-Economy/2011/1102/Lessons-from-MF-Global-s-unraveling

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Fears grow over US pension crisis as Rhode Island's debts are laid bare

Rhode Island's debts have been woefully underestimated, with alarming consequences for cities across the US, says report

Dominic Rushe, guardian.co.uk, Thursday 10 November 2011 �Article history

The debt crisis engulfing local US governments could be even worse than first feared after a new report said Rhode Island's massive pension debt may have been severely underestimated.

The report comes amid a spate of municipal bankruptcies across the US. This week, Jefferson County in Alabama filed for bankruptcy protection, the largest municipal collapse in US history. Pennsylvania's capital, Harrisburg, filed for bankruptcy in October.

Rhode Island, America's smallest state by area, is currently in the midst of an unparalleled economic crisis. One town, Central Falls, has already filed for bankruptcy and others are expected to go the same way as the state wrestles with massive pension liabilities and declining tax incomes.

Rhode Island is seen by some as an early indicator of a widening financial crisis in local and state finances where pension costs, bad loans and falling revenues are threatening to bankrupt cities across the country.

Ten cents of every state tax dollar now goes to retired public workers, according to official figures. But the real situation is far worse, according to a study by George Mason University. Researchers Eileen Norcross and Benjamin VanMetre said the real size of the state's pension debts are double the official figures.

According to Rhode Island's calculations, the unfunded liabilities for their local and state workers' pensions total $9.2bn. Unfunded liabilities are the costs a pension plan faces after its assets have been stripped out. Norcross, a municipal pension expert who has testified to Congress on America's pension crisis, calculates that the real bill is $18.8bn.

"The government figures are based on assumptions that just don't hold up," she said. "They are based on expected returns of about 8% on their assets and they are not getting that."

Rhode Island and all other US states arrive at this figure using a hotly disputed formula drawn up by the government accounting standards board (GASB), which is currently reviewing the way it reports pensions by state and local governments. The official formula allows pension funds to project a 7.5% growth rate, cut from 8.25% last year, but that figure has been criticised by many economists, including Donald Kohn, former vice chair of the Federal Reserve Board.

Norcross and VanMetre used the 3.7% rate on low-risk Treasury bonds to make their calculation, a suggestion that has been championed by other economists, with alarming resullts. Under their calculations the real liability Rhode Island faces on pension plans for its teachers leaps from $4.1bn to $7.2bn, the police liability leaps from $29m to $50.6m.

Norcross said cities including Chicago, Los Angeles, San Francisco, Cincinnati, Boston and Philadelphia all had issues similar to Rhode Island, and were using the same inflated assessment to calculate their pension liabilities. "It's depressing and it's very frightening, but we have got to look at the real numbers," she said.

Fear that states will cut local workers pensions plans have led to a dramatic rise in early retirements. Across the US, the number of people taking early retirement in the hope of avoiding cuts to their benefits has surged. In San Jose, union leaders representing firefighters and police are heading to court over proposals from city officials to cut their benefits.

"I understand why people would do that but it can undermine the system even further," said Norcross.

Michael Hodin, a senior fellow at thinktank the Council of Foreign Relations, said the pensions crisis was a global phenomenon as responsible for Italy and the Eurozone's economic woes as it is for Rhode Island's.

"Everone is underestimating the structural challenges of an ageing population," he said. "The core of this financial meltdown we are seeing is that we can't afford 20th-century social welfare with 21st-century demographics." http://www.guardian.co.uk/business/2011/nov/10/us-pension-debts-rhode-island

http://www.guardian.co.uk/business/2011/nov/10/us-pension-debts-rhode-island

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Talks on Harrisburg recovery plan deadlocked - �

HARRISBURG, Pa. (AP) � November 11, 2011

With a Monday deadline looming, Harrisburg's mayor and City Council were deadlocked Friday over a financial recovery plan for Pennsylvania's struggling state capital.

Both sides said they are willing to continue the discussions, but no further meetings are scheduled.

The city has until Monday to submit to the state Department of Community and Economic Development a plan for paying down $300 million in debt tied to the city's incinerator and stop a potential state takeover under a newly passed law.

A majority on the council has filed for bankruptcy protection in an effort to get the city's creditors to forgive $100 million of that debt, but the largest of the creditors � bond insurer Assured Guaranty Municipal Corp. � rejected that idea Wednesday.

A federal bankruptcy judge has set a Nov. 23 court date for oral arguments on legal questions surrounding the Chapter 9 filing.

The takeover law gives Harrisburg a grace period of 30 days, ending Nov. 25, to develop a financial recovery plan. If those 30 days pass without a plan agreeable to the city and the state, the state Commonwealth Court could authorize Gov. Tom Corbett to appoint a receiver with the power to sell city assets and approve contracts � but not raise taxes � to pay down the city's debt.

On Wednesday, Alabama's most populous county filed a Chapter 9 petition representing the largest municipal bankruptcy in U.S. history in a bid to regain control of its sewer system and wipe away as much of its $4.15 billion in debt as possible. http://news.yahoo.com/talks-harrisburg-recovery-plan-deadlocked-225331501.html

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Cut public employee pensions, California voters say

Rhode Island Passes Sweeping Pension Overhaul Bill, Ohio vote shows unions still a political force� Various News - Publications - Nov 11, 2011