The big surprise isn’t that Jefferson County, Alabama, filed for bankruptcy protection from creditors, but that the county was able to stave off the inevitable for so long.
You have to hand it to the county commissioners. They were intent on doing the right thing, which in the municipal market means doing everything in one’s power to keep the business open and maintain it as a going concern.
In fact, though, the county should have sought protection years ago, and not just from creditors, but from all the bankers, analysts and politicians who have betrayed it. There’s plenty of blame to go around in this one.
Maybe now Jefferson County will get some much-needed help. All those who have created and abetted this disaster, at least the ones not already in jail, will get some castigation, perhaps in the form of a sternly worded remonstrance from the federal bench.
The county needs help. What nobody needs right now is anyone declaring that Jefferson County is somehow a harbinger, or emblematic of all that’s wrong with the municipal market.
Hogs to Trough
No way. Jefferson County, like all municipal-market catastrophes, is particular and specific. There aren’t a barrelful of other municipalities out there just like Jefferson County. No, Jeffco, as its friends call it, is a case study all by itself.
Public finance has a prominent role in the largest municipal bankruptcy in U.S. history. And to be sure, Wall Street will pay and pay and pay for its part in this mess. Yet please keep in mind that the county and its leaders are the real culprits here.
What happened? The county agreed to clean up its sewer system. Then it let things get out of hand, and so a cleanup at first estimated at a couple of hundred million dollars eventually cost more than $3 billion. The hogs rushed the trough.
The proximate cause of the Jeffco bankruptcy wasn’t the big series of bond sales or even the insane swaps strategy pursued by the county. The thing that pushed it over the edge was a court ruling that invalidated a wage tax that generated one-quarter of the Jeffco general fund.
You can spend hours debating who’s to blame. What’s next?
That’s very hard to say. Municipal bankruptcy is uncharted territory unless you’re dealing with things like rural utility districts and the like -- in other words, “municipalities” in name only, with few people, which are settled in an almost formulaic manner. Every bankruptcy by a city or county is going to be different. Jefferson County is not the city of Vallejo or Orange County, California.
The county commissioners sounded almost relieved after they voted to file for bankruptcy, as if it somehow represented the end. To paraphrase Winston Churchill, this isn’t the end. It isn’t even the beginning of the end. But it is the end of the beginning, and for that all market participants should be thankful, I guess.
“The people of Jefferson County have had enough,” Commissioner Joe Knight is quoted as saying just before the meeting where commissioners voted for bankruptcy.
Enough? County residents’ woes are only beginning. I don’t think the series of remarkable concessions wrested from creditors in a settlement proposed in September -- including a scalping rather than a haircut on debt -- are still going to be on offer.
I also don’t think a federal bankruptcy judge is going to provide absolution of all that debt, or of future, and gigantic, sewer rate increases. There are hard times ahead for Jefferson County.
But it’s Jefferson County, not all counties, and not all municipalities, and don’t let anyone tell you otherwise.
(Joe Mysak is editor of Bloomberg Brief’s Municipal Market. The opinions expressed are his own.)
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