Jefferson County Bankruptcy Pits Urban Sewer Users Against Wealthy Suburbs

For some residents of Mountain Brook, Alabama’s richest city, declaring the biggest municipal bankruptcy in U.S. history isn’t the way for Jefferson County to confront its financial distress.

“I’m conservative, and I would never file bankruptcy,” Lori Oswald, 54, said at a Starbucks in a Tudor-style strip mall in the suburb of the county, home to Birmingham and more than 658,000 people.

County commissioners will meet today to decide how to resolve the strain of a refinancing on $3.1 billion of sewer- system bonds that collapsed more than three years ago. They can choose bankruptcy or accept an offer from creditors led by JPMorgan Chase & Co. (JPM) to reorganize the debt and impose a series of 8 percent increases in sewer rates.

The rate increase is “not so egregious” that it should block a deal, said Oswald.

Five miles (8 kilometers) away, past the Birmingham Country Club and down the hill that gives Mountain Brook its name, John Jenkins, 61, a retiree on a fixed income, wants no settlement that includes higher rates.

“If they can’t keep it like it is, then go with bankruptcy,” he said in an interview near the county offices.

Opinions often depend on where citizens sit in the county’s economic hierarchy, according to interviews this week. Low- income residents, the biggest portion of sewer-system customers, according to Commissioner George Bowman, want a bankruptcy so the pain spreads throughout the county, not just on them.

Not at Fault

“It’s not our fault the county got into this jam,” Kewana Simmons, 44, said while she sat with her 75-year-old mother at Cooper Green Mercy Hospital, a county-owned facility that serves the poor.

“I’m for any solution that doesn’t hurt us or just us,” Simmons said. “If you’re going to do it, it should be for everybody.”

Jefferson County’s sewer system serves about 150,000 customers, including about 10,000 of Mountain Brook’s 21,000 residents, according to City Manager Sam Gaston.

The 2009 median household income in Mountain Brook was $129,034, according to U.S. Census Bureau data, more than twice the $50,173 median in New York. It’s also 13 times more than the poorest community in Alabama and as much as 10 times the income in Jefferson County’s poorest census tracts, which are served by the sewer system.

Looming ‘Disaster’

Richard Simmons III, not related to Kewana Simmons, favors a settlement. The retired insurance executive and non-profit executive from Homewood, a Birmingham suburb, said a bankruptcy “would be a disaster.”

“It impacts all future ability to borrow,” he said at the Starbucks. Simmons is the trustee of his father’s estate, which holds some of the sewer debt.

Jeff Seidman, a Homewood manager with a private equity firm, said he backs bankruptcy because residents can’t afford sewer-rate increases.

“They need to bite the bullet and get the debt off the books,” he said.

A bankruptcy wouldn’t preclude higher sewer rates or service cuts, only likely delay them, said James Johnston, a Los Angeles partner of Dewey & LeBoeuf, one of the lead counsels in the 1994 Orange County, California, Chapter 9 filing, the biggest U.S. municipal bankruptcy so far.

The county’s financial strain -- including a $40 million general-fund gap -- is falling on the poor in ways other than sewer rates.

Changes in Jail

The sheriff’s department consolidated jails to help deal with budget cuts. The office’s funding was $63 million three years ago and will likely be $43 million next year, Sheriff Mike Hale said in an interview.

The cuts have led to shortages of toilet paper, linens and clothes, according to interviews with inmates and staff.

Ron Eddings, the captain in charge of the jail, said the department was “begging” for basic needs.

“You have to dry off with your uniform,” said Takita Watson, an inmate who said the jail no longer provides towels.

Care at Cooper Green Mercy Hospital is also in jeopardy, said Sandral Hullet, its chief executive.

Jefferson County’s Republican state lawmakers want to end an Alabama requirement that a half-percent of county sales taxes goes to Cooper Green. They want part of the money redirected to the county’s general fund.

The earmarked sales tax delivered more than $40 million of the hospital’s $90 million in 2011 revenue, said Hullett, 65. It also helped serve “the uninsured, the underinsured,” she said.

Hullett said redirecting the money would cut care to the 100,000 outpatient and 35,000 emergency room patients the hospital served in the last year, many referred from other hospitals because of finances.

Mary Lee Jenkins, 64, has been coming to Cooper Green for 31 years from Bessemer, 20 minutes away.

“I wouldn’t know where else to go,” she said.

To contact the reporter on this story: Margaret Newkirk in Birmingham, Alabama, at mnewkirk@bloomberg.net Simone Baribeau in Birmingham, Alabama, at sbaribeau@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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