Essay on Jefferson County Bankruptcy Case

Jefferson is a county in the state of Alabama that was established on 13th December 1819 (Woodley 2015). It was named Jefferson in honor of Thomas Jefferson who was the third president of the United States and a champion of America's independence. The county is in the north-central part of Alabama, covering the southern part of the Appalachian Mountains that was majorly known for coal, iron, and limestone mining. In Alabama, Jefferson has the largest population. Its county seat is called Birmingham and is also the most populated city in the state of Alabama. Birmingham growth is credited to the 20th Century industrialization that attracted many black and white migrants, and immigrants from Europe who were seeking employment opportunities.

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In the year 2011, the county was declared bankrupt with a debt of $4 billion. The declaration marked the second largest municipal bankruptcy declaration, second to that of Detroit, Michigan (Shao 2015). However, in December of the year 2013, the county emerged from bankruptcy after the United States Bankruptcy Court approved the implementation of the bankruptcy plan proposed by the county. The cause of the Jefferson, County financial difficulty has been mistakenly credited to canary relating to the coalmine for the municipal bond market. According to Lav (2014), the county's state of bankruptcy was mainly caused by the county's official engagement in fraudulent activities and bribery with the different financial firms in the county at the expenses of its taxpayers. In the early 1990's the county started planning to authorize and financed a project that was meant to improve its sewer system. The project was initiated in the year 1996 when the county got into a consent decree with the Federal Environmental Protection Agency that saw it authorized to proceed with its plans for improving its sewer system.

Jefferson, County financed the project through the use of several bond offerings. The budget of the sewerage project was estimated to cost about $1.5 billion. However, its estimations doubled to $ 3 billion. According to Guess et al. (2016), this caused the sewer rates of the county to increase by almost 300% for over four years to finance the project. The increased budget estimation of the county raised eye brows, and in the year 2002, the Federal Bureau of Investigation (FBI) launched an investigation into the sewerage project of the firm. Their investigation resulted to the conviction of 21 people who were the county's commissioners and employees, and some of the project contractors. The accused were arrested mainly for their participation in the act of the construction firm bribing the local officials with an intent of getting tenders. In the year 2006, the United States Securities and Exchange Commission initiated an investigation on the county's controversial swaps.

The FBI arrests did not lead to the eradication of the practice of bribery. In November 2002 Larry Langford became the president of the Jefferson County Commission (Winterstein 2016). As the president, he initiated various controversial interest rate swaps between the year 2002 and 2003 hoping that it would lower the interest payments. However, its implication was the opposite of what he expected the swaps lead the county's debt to increase. Some of the financial institutions that were involved in the swap were such as; JP Morgan's, Goldman Sachs, Gardnyr Michael, ABC Capital and the Blount Parrish which was owned by William Blount, a close friend to Larry Langford. The collapsing of the auction rate securities in the year 2008 is what initiated the county's fraud downward trend. Langford, Blount, and LaPierre who was also a friend of Langford were indicted for fraud, conspiracy, and bribery (Guess 2016). LaPierre and Blount pleaded guilty to the charges, and the two were sentenced to 48 and 52 months in prison respectively. Langford proceeded to trial. He was convicted and was sentenced to 15 years in jail.

Jefferson County bankruptcy case had various impacts on the state of Alabama. The case led the county to spend more than $24 million financing for the services of attorneys and other advisers. The payment of the county's law suit went to two of the county's major law firms, Klee, Tuchin, Bogdanoff and Stern LLP located in Los Angeles, and Bradley Arant Boult Cummings LLP that has its offices in Birmingham. The first law firm collected $10.1 million in fees and was given about $204000 for reimbursement of their expenses. The second one received $8.2 million as fees and received $294000 as reimbursement for the expenses they incurred. According to Winterstein (2016), the case has also led to the imposition of a higher tax ratio to the tax payers thus increasing their burden. The sewerage rate is expected to increase by 7.9% yearly for four years from 2014, and by 3.5% until the year 2053.

References

Guess, A. K., Broom, L., & Reburn, J. (2016). Jefferson County Alabama: a dark cloud looms. The CASE Journal, 12(2), 233-247.

Lav, I. J. (2014, July). Curbing the Consequences Achieving Better Outcomes for Workers in Municipal Bankruptcies. In New Labor Forum (p. 1095796014542980). SAGE Publications.

Winterstein, S. (2016). Municipal Fixed Income.

Woodley, M. (2015). Flushed away: Jefferson County, Alabama's sewer debt crisis.Shao, Z. (2015). Role of Industry in New Urban Areas. In The New Urban Area Development (pp. 213-216). Springer Berlin Heidelberg.