A Republican senator plans to introduce a constitutional amendment that would put the state’s restrictions on union activity, also known as right-to-work, into the state’s governing document. Sen. Gerald Dial, R-Lineville, said Tuesday he believed the move, which would have … Continue reading
A year into Jefferson County, Ala.’s historic bankruptcy, its elected leaders are playing tug of war with the brightest lawyers hired by Wall Street banks to protect their $3.2 billion investment in the county’s sewer system.
But it is a self-described “slow country boy from West Virginia” who is driving the largest municipal bankruptcy case in U.S. history.
U.S. Bankruptcy Court Judge Thomas Bennett, 63 years old, has pushed the rare Chapter 9 case into unexplored parts of bankruptcy law, applying a blunt and unconventional style to a legal battle that threatens to shift the landscape for municipal-bond investing.
“I suspect before that case is finished there will be a lot of new law made in it, and [Bennett] will be instrumental in the process,” said Judge John T. Copenhaver Jr. of the U.S. District Court for the Southern District of West Virginia, who at age 87 is the nation’s longest-serving federal judge. “There isn’t anyone east of Orange County who has any vast experience in a Chapter 9 case,” referring to the California county that previously held the record for the country’s largest municipal bankruptcy.
Before this assignment, one of Judge Bennett’s biggest cases during his 17 years on the bench involved a Chapter 11 filing by a poultry farm with six million live chickens. His 18 years of private practice in West Virginia exposed him to a handful of small municipal bankruptcy cases, but only for special taxing districts—not for a 658,000-resident county that is home to the city of Birmingham.
Jefferson County filed for bankruptcy protection in November 2011 in an attempt to trim payments to J.P. Morgan Chase JPM +0.88% & Co. and other bondholders who extended $3.6 billion that the county began borrowing in 1997 to stop its sewer system’s more than 3,000 miles of pipe from leaking raw sewage into Alabama rivers.
As the case has proceeded, county officials have cut government jobs and limited work on its streets and leaky sewer pipes. The county has threatened to shut down major operations at its hospital for the poor, and the line of people waiting to renew licenses and permits often wraps around the municipal building.
For banks and other financial firms, the fear is that the case could create law that would scare off investors in the $3.7 trillion municipal-bond market.
Judge Bennett—whose house is connected to a septic tank that is not hooked into the sewer system—has played an active role as lawyers squabble over every technicality.
He forced the county’s $1,050-per-hour private attorney to interpret the fine print of municipal accounting rules to construct legal arguments around the county’s desire to make bondholders pay for most of the bankruptcy costs. The county’s request, an unprecedented attempt to have creditors cover Chapter 9 costs, remains unresolved.
Unsatisfied with the information that lawyers put before him on whether Alabama state rules restrict counties and towns from filing for bankruptcy, Judge Bennett sent his law clerks to a Montgomery library to dig up details for a dense, 28-page decision in March that enabled the case to continue.
If lawyers from outside the Birmingham bar “start with an assumption that someone who practiced in West Virginia and is now a judge in Alabama is not sophisticated enough, they are in for a rude shock,” said Frederick Schauer, a longtime Harvard professor who now teaches the University of Virginia’s law school, of his former student.
Indeed, his controlling style has rattled some attorneys, who have granted him a nickname: the smartest man in the room.
“I frequently ask questions to see if I’m missing something, not necessarily because that is my position,” Judge Bennett said in an interview. “It’s really trying to flesh out whether I’m missing something or wrong on something.”
Judge Bennett took the bench in 1995 after working at a firm in Charleston, W.Va., where he represented such clients as Exxon and coal firm Massey Energy Co. Thomas Heywood, a former colleague, described him as always being “three or four chess moves” ahead of opposing lawyers. “Ambiguities and the unknown, those are of natural interest to Tom,” Mr. Heywood said. “That’s how his mind works.”
Judge Bennett grew up outside Philadelphia and attended a boarding school after his father, the dean of a medical school, died before Judge Bennett turned 10 years old. He later earned undergraduate and graduate degrees from West Virginia University for economics, and then enrolled in the law school. His classmates called him “gunner” for his ambition to graduate at the top of his class—which he did in 1976.
Judge Bennett first heard about the spot on Birmingham’s bankruptcy bench in a mass-mailed flier. His appointment in 1995 to a 14-year term came as a surprise to the attorneys there who didn’t expect an outsider.
As former president of the National Conference of Bankruptcy Judges, he testified before Congress in 2007 about the foreclosure crisis. Like all federal bankruptcy judges, his salary is $160,080.
But Judge Bennett’s brusque style is distinct from the fraternal culture common in bankruptcy courts in Manhattan and Delaware. In one of the first hearings, he denied a request from Wall Street lawyers who asked for more time to organize a round of arguments, telling them that they should expect to have a “full-time job at least for the next 30 days in this case.”
“If you’re a big-time lawyer and making a lot of money, he expects you to know what you’re talking about,” said P. Michael Pleska, a retired attorney who worked with Judge Bennett in private practice.
But as residents worry about ballooning sewer costs and the county’s creditors clamor for repayment, Judge Bennett has at times taken months to write opinions. “Like I said, I’m a slow country boy,” Judge Bennett said at a hearing. “I may have to educate myself a little bit.”
PRICHARD, Alabama – More time is needed for the new Prichard City Council to get familiar with legal matters pertaining to an ongoing bankruptcy protection lawsuit against the city, the council decided Monday.
With the decision, the council voted to request U.S. Bankruptcy Judge William Shulman to grant a continuance of the Chapter 9 bankruptcy case against the city when it goes before him at 8:30 a.m. Nov. 27.
“In the past, he gave us just two to three weeks (between court appearances),” Mayor Troy Ephriam said after the council meeting. “I think we need some months to factor this in and figure out where we are so I can get the council up-to-speed on where we are.”
The council’s request focuses on that three-fifths, or three of the council’s five members, were newly sworn in this month. Also, Ephriam is the city’s newly elected mayor.
“We’ve been dealing with bankruptcy for 12 years,” Council President Earline Martin-Harris said, referring to the first bankruptcy filing in 1999. “We have three people who’ve been dealing with it for two weeks.”
Four of the five council members agreed to the continuance request, but Councilwoman Ossia Edwards said the city is “playing Russian Roulette” by requesting another postponement in the ongoing financial reorganization case.
She abstained from voting.
“I truly believe, in my heart, we should move forward and not take a risk,” Edwards said.
Ephriam said he is confident the continuance will be granted, and that Shulman will give the new council time to present a reorganization plan.
Ephriam said he plans to release a preliminary plan next month.
“I don’t have the luxury of a time line,” he said. “By the Christmas holiday, we’ll get a draft. When we come back the first of the year, we can tweak it.”
Ephriam said since he’s been sworn in Nov. 5, he’s been focused on coming up with a financial reorganization plan that addresses the city’s beleaguered pension program.
Prichard, which has no bond debt, filed for bankruptcy protection in 2009, in large part to avoid being forced to prop up the pension plan.
City employees, fearing for their pensions, moved to block the bankruptcy action, arguing that Alabama’s laws require a municipality to have debt in the form of bonds to qualify for bankruptcy protection.
The purpose of Chapter 9 is to provide a financially distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. That reorganization is typically accomplished either by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.
Congress enacted bankruptcy legislation for municipalities in the 1930s.
Since 1980, there have been 270 municipal bankruptcies.
Once a city is bankrupt, it can cut costs, increase revenue or both.
Municipal bankruptcies are nothing new, but several recent landmark filings have transformed Chapter 9 of the U.S. bankruptcy code for municipal reorganization from a relatively obscure body of law into a hot topic. Residents of struggling cities are wondering what the possibility of bankruptcy means for them.
“We’ve had cities go bankrupt in the past, but usually those are isolated events that occur because the city lost a big lawsuit or had a local catastrophe,” says Franklin C. Adams, a bankruptcy lawyer in Riverside, Calif. “What’s different and quite troubling is that larger economic conditions seem to be the cause, and we haven’t seen that since the Great Depression.”
Congress enacted federal bankruptcy legislation for municipalities in the 1930s. Since 1980, there have been 270 muni bankruptcies, according to data from the U.S. court system. Last year, 13 municipalities filed for bankruptcy protection, according to Reuters. But the recent filings have been noteworthy.
Jefferson County, Ala.: The county filed last November, citing more than $4 billion in debt. In terms of dollar amount, the filing is the largest civic bankruptcy in U.S. history, according to The Huffington Post.
Stockton, Calif.: The city filed for bankruptcy at the end of June, becoming the largest American city, in terms of population, to seek protection from creditors under Chapter 9. City officials estimate that Stockton, which has just fewer than 300,000 residents, could owe creditors as much as $1 billion, according to CBSNews.com.
Harrisburg, Pa.: The city has an estimated $400 million in debt, and a judge rejected that city’s bankruptcy petition because it violated state law, according to CNNMoney.com.
San Bernardino, Calif.: Just a month after Stockton, this Southern California city announced its decision to file bankruptcy. It had more than 200,000 residents. The move has prompted many to worry that other cities might follow suit, according to CBSNews.com.
What is Chapter 9?
In many ways, a Chapter 9 filing is akin to Chapters 11 and 13 of the bankruptcy code, which deal with business and personal reorganizations, respectively. Under all three scenarios, debtors get a reprieve for paying creditors while they propose and implement a restructuring plan. But unlike private citizens and companies, municipalities are sovereign entities, which present an unusual wrinkle, Adams says.
“Realistically, the court doesn’t have as much power to force the city to do anything,” Adams says. “So, unlike other provisions of the bankruptcy code where the creditors have a vote on the reorganization plan, the city has a lot more latitude.”
Once a municipality is bankrupt, it can cut costs, which usually means fewer services such as firefighting, garbage collection and library branches, according to the Los Angeles Times. Or it can increase revenue by raising taxes. Usually, it’s a combination of both, Adams says. But real change is often a matter of political will.
What happens to services?
“Municipal bankruptcies usually mean a reduction in the size, scope and quality of services because that’s where the biggest costs are,” says Adams.
For instance, in San Bernardino, public safety agencies account for 75 percent of that city’s budget, according to the Los Angeles Times. read more…
BIRMINGHAM, Alabama — Jefferson County this morning asked the judge presiding over its bankruptcy case to order the City of Birmingham to drop its lawsuit that seeks to block the closure of inpatient services at the county-run Cooper Green Mercy Hospital.
“The County requests that the Court issue such orders as may be necessary to enforce cause the City and the Mayor to cease prosecuting the lawsuit and to otherwise cease all acts to exercise control over Cooper Green Hospital,” according to the county’s request filed just after 9 a.m. today.
U.S. Bankruptcy Judge Thomas Bennett later this morning ordered an emergency hearing for 9 a.m. Thursday to consider the county’s request.
Under a Chapter 9 municipal bankruptcy filing, the county argues, there is an automatic stay on the commencement of new or continuation of all existing lawsuits against the county. Attorneys for the city have argued that the automatic stay doesn’t apply in this case.
The county filed for Chapter 9 bankruptcy in November, citing $4.23 billion in debt. It is the largest municipal bankruptcy filing in U.S. history.
As the county’s request to the bankruptcy judge was being filed this morning the Jefferson County Commission was in a meeting where they voted to close inpatient care at Cooper Green Mercy Hospital. A majority of commissioners have said the county’s ailing general fund has subsidized the hospital $10 million a year for the past three years and can no longer afford the drain.
The city of Birmingham had filed a lawsuit earlier this month in an attempt to block any commission action to close the hospital without first having a plan in place to pay for indigent healthcare in the county.
The city argues that closing the hospital without having a plan in place to provide healthcare for indigent patients violates the Alabama Health Care Responsibility Act.
The county, however, argues that the act does not require the county to operate or maintain Cooper Green Hospital. Instead, the county says, the act appears to just impose a financial obligation on it for the medical costs of indigents living in the County.
The decision by three California cities to seek bankruptcy protection in the space of two weeks is unlikely to presage a wave of copycat filings. But it does underscore the mounting financial pressure facing local governments around the country.
Collapsing property values and entrenched unemployment have pushed cities and counties to the economic brink. Tax receipts in some locales have shrunk more than 20% over the last three years, and soaring pension costs exceed funding levels by as much as $3 trillion nationwide.
As the California cities of Stockton, Mammoth Lakes and, most recently, San Bernardino show, the temptation to flee to Bankruptcy Court is growing. Last year, four municipalities nationwide also applied for so-called Chapter 9 protection, including Jefferson County, Ala., which eclipsed Orange County as the largest such filing in U.S. history. Meanwhile, the Bay Area city of Vallejo emerged from its own reorganization.
All that has fed fears that American cities are lined up to fall like so many dominoes. But municipal bankruptcy filings are likely to remain rare for a variety of legal and political reasons.
What’s clear is that the fiscal pain experienced by U.S. cities is widespread and shows no sign of easing.
MONTGOMERY, Ala. (WALA) – Governor Robert Bentley recently praised legislative approval of pension reform measures that will ensure the viability of the state’s retirement system while also saving taxpayers more than $5 billion over 30 years.
Senate Bill 388 was approved by the House of Representatives. The bill received Senate approval in April. The legislation will now go to the Governor’s desk. Governor Bentley is planning to sign the pension reform measures.
“The measures we have outlined will protect the retirements of hard-working Alabamians while ensuring a strong retirement system for future employees,” Governor Bentley said. “The changes will only affect new hires who begin their employment next year or later. The changes are fair, they uphold our commitments to current employees, and they provide a solid retirement for future employees as well.”
Governor Bentley joined with legislative leadership and Retirement Systems of Alabama Chief Executive Officer Dr. David Bronner in March to outline revisions.
A minimum retirement age of 62 for most state employees. Currently, anyone may retire once vested (10 years of service) at age 60 or with 25 years of service at any age. The reform proposals set a minimum retirement age of 62.
Law Enforcement – Minimum retirement age of 56.
Adjust pension payments from an average of the highest-paid 3 years out of the last 10 years of service to an average of the highest 5 years.
In exchange for the restructuring of benefits, new hires would see their employee contribution rates changed from 7.5 percent to 6.0 percent (7.0 percent for law enforcement, firefighters, and corrections employees). This measure will increase employees’ take-home pay.
Total estimated savings over 30 years: $5.03 Billion
Average annual savings over 30 years: $162 Million
The changes will bring the state’s retirement system more in line with the private sector. Many other states across the country have adopted similar measures.
Alabama Retirement Systems participants other than public safety employees hired after Jan. 1, 2013, will contribute 6% of pay, from the current 7.5% for existing state employees, under a pension reform proposal passed by the state Legislature this week that will also raise the retirement age for new state employees.
Law enforcement, firefighters and corrections employees will contribute 7%, down from 10%, and have a lower minimum retirement age.
Gov. Robert Bentley plans to sign the bill, according to a release on the governor’s website.
“It’s good for taxpayers and it’s certainly good for members,” said David Bronner, CEO of the $26 billion Montgomery-based retirement system, in a telephone interview.
Mr. Bronner said the system worked with the Legislature to protect benefits to current employees and the bill puts Alabama more in line with other states that have enacted pension reform in recent years. The system is about 75% funded.
Currently, all state employees can retire at age 60 with 10 years of service or retire at any age after 25 years of service. The bill would raise the minimum retirement age to 62; 56 for law enforcement, firefighters and corrections employees.
Also, pension payouts will be determined by the average of the highest-paid five years out of the last 10 years of service, from three years.
The measure is expected to save $5 billion over the next 30 years.
Big changes to Alabama’s public employee retirement system are a virtual done deal now after a pension reform plan cleared its last hurdle on Tuesday.
The Alabama State House passed Senate Bill 388 by a vote of 69-33, clearing the way for Governor Robert Bentley to sign the bill into law later this month. Current public employees will be exempt from the changes, which will take effect with new hires beginning next year.
The proposal sets a new minimum retirement age of 62 for all public employees. An age exception was made for people working in the field of law enforcement, where the minimum standard will be 56. The pension reform plan will also reduce the total amount of pension benefit for workers, who will now get to keep more of their take home pay in exchange.
Lawmakers said the changes were necessary to keep the pension system afloat long-term. Governor Bentley’s office said the measure will save Alabama taxpayers more than $160 million annually, and $5 billion over the next thirty years.
A wave of Huntsville city employees filed for retirement earlier this year due to concerns over the changes, but City Administrator Rex Reynolds predicted that most of those workers would withdraw their retirement paperwork.
“It will have an immediate impact if the governor signs it,” said Reynolds, who started as a police officer in 1980. “My papers are still in to retire, however, after today’s events, I will pull that paperwork and continue to work…Obviously, it’s a time for adjustment in the state retirement system, and we understand that. It was just the unknown. I’m glad something came to pass today, it will be settling to the workforce.”
Governor Bentley said he would sign the bill into law as soon as possible.