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US judge declines to set deadline for bankrupt Alabama county
September 13, 2012 / 7:20 PM / 5 years ago

US judge declines to set deadline for bankrupt Alabama county

BIRMINGHAM, Ala., Sept 13 (Reuters) - A federal judge on Thursday turned aside a request by Wall Street creditors to set a deadline for Alabama’s Jefferson County to develop a workout plan in America’s biggest municipal bankruptcy.

Arguing that the county, which filed its $4.23 billion case last November, was proceeding too slowly, some creditors in July asked U.S. Bankruptcy Judge Thomas Bennett to set a deadline for hammering out an exit plan.

Lawyers for the county, which has exclusive rights to propose an adjustment plan that must win Bennett’s approval, said Jefferson County’s finances were deeply tangled and required more time to sort out.

“I still think it’s premature,” Bennett said during a short hearing in Birmingham.

The creditors and Jefferson County, whose finances were ravaged by massive sewer debts, political corruption and the loss in 2011 of a local jobs tax worth $60 million a year to the local government, are in negotiations on workout terms.

David Carrington, the county’s top elected official, recently said he hoped to have a roadmap for exiting bankruptcy court in place by the end of this year, after previously saying a plan might not be ready until late 2013.

Analysts have predicted Jefferson County, whose officials have slashed county staff and are now working on eliminating a $26 million shortfall in the fiscal 2013 general fund, might need years to hammer out a plan.

Last week, a judge signed off on a Chapter 9 exit plan filed by Rhode Island’s Central Falls, a little more than a year after the small city filed its case.

Some of Jefferson County’s creditors argue that officials are moving too slowly on pushing ahead with rate increases for customers of the county sewer system. Much of the increase would go to paying creditors.

“The general fund has its own set of problems that are very complex. Those have to be resolved in their own right before we file a plan,” said Patrick Darby, a lawyer for the county. “What we do with the general fund and the sewer are connected.”

Jefferson County’s workout plan, which must be judged fair to creditors and reasonable in light of its finances and obligations, can include reductions in bonds and other debt.

The bankruptcy was also driven by a 2011 court ruling that killed a local payroll tax worth about $60 million a year to the county and forced hundreds of layoffs and cuts in medical and other government services.

Jefferson County -- whose seat of government is the city of Birmingham -- 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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