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Bankrupt Alabama county OKs budget with skipped bond payments
September 26, 2012 / 9:37 PM / 5 years ago

Bankrupt Alabama county OKs budget with skipped bond payments

BIRMINGHAM, Ala., Sept 26 (Reuters) - Alabama's bankrupt Jefferson County on Wednesday approved a slimmed-down $205.2 million annual operating budget that uses withheld bond-interest payments and asset sales to offset revenue shortages.

By a three-to-one vote, county commissioners passed what is the local government's first new budget since the county filed its landmark, $4.23 billion Chapter 9 bankruptcy case last November.

The county, which includes Alabama's biggest city of Birmingham, is now in negotiations with Wall Street creditors on a plan to end the bankruptcy brought on by overwhelming sewer-system debt and the loss of a jobs tax.

Jefferson County's new budget, which is $12 million smaller than the current one for the fiscal year ending Sunday and $107 million below the last fiscal year total, relies on $4.4 million from sales of assets and $15 million of savings from a general obligation (GO) warrant interest payment due on Monday.

With about $200 million of GO warrants outstanding, the county skipped a $15 million GO payment last April.

The county has long been in default on more than $3 billion of sewer system debt that was the main cause of the biggest U.S. municipal bankruptcy but officials only this year have voted to skip payments on general obligation debt. An estimated $12 million of the skipped debt payments will go for legal fees, officials said.

Jefferson County's bankruptcy was also driven by a March 2011 court ruling that killed the payroll tax worth about $60 million a year to Jefferson County, which has cut staff by 1,000 and reduced medical and other government services.

Jefferson County on Nov. 9 filed for bankruptcy after a tentative agreement with creditors fell apart. That deal might have delivered a $1 billion reduction in the county's debts.

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