Nov 14, 2011
In early November, Jefferson County with 700,000 residents and home to Alabama’s biggest city, Birmingham, became the largest municipal bankruptcy in U.S. history. It had crumbled under the weight of four billion dollars of debt.
This bankruptcy came out of a sewer project that went wildly over budget. Cost overruns by construction companies and contractors that overcharged for building the sewers created the first mountain of debt. That debt was multiplied by Wall Street banks, notably JP Morgan. The bank cooked up so-called “creative” financing schemes, which were designed to hide the rising debt for a short while. In reality, these schemes drove up the debt astronomically – and the cost to finance it.
Jefferson County was driven into debt and bankruptcy by bankers, contractors, local officials and middlemen, who turned a local sewer project into a multi-billion dollar gold mine for all these criminals.
The working population and public sector workers have already been footing the bill for this boondoggle. Local officials have quadrupled sewer rates, with more increases coming. They slashed the county budget by a third, cutting more than 500 public sector jobs in the process. They closed several court houses, ended all road maintenance, and stopped the sheriff’s department from responding to car accidents.
Now that county is in bankruptcy, what does that mean? Do the banks, contractors and other blood suckers, who made enormous fortunes off the sewer project and financial schemes, have to give the money back?
No. They will continue to drain more money out of Jefferson County. Chapter 9, that is, the federal bankruptcy law for municipalities, protects them. It specifies that municipal governments cannot reduce their debt or debt payments to the banks and the wealthy. For JP Morgan, which holds 1.2 billion dollars in debt on the Jefferson County sewers, will continue to profit greatly. And the same goes for all the other wealthy bondholders.
No, bankruptcy was invented so government officials can more easily attack working people: to reduce spending, as well as jobs, pay and benefits. And sure enough, next in line for cuts by January 1 are senior citizen centers and the jobs of building inspectors. Using bankruptcy, municipal officials in Jefferson County are shrinking the budget of an important metropolitan area to that of a few rural villages.
What is happening in Jefferson County is only part of a wide ranging attack that governments and agencies in big cities and small towns across the country are carrying out against the population. Sometimes they use bankruptcy filings to gut municipal employee pensions, as they did in tiny Central Falls, Rhode Island and in Vallejo, California. But most commonly, the yawning budget deficits created by the plunder of big companies and the banks is used to slash services, jobs, pay and benefits. In Michigan, a new state law allows officials to use the budget deficit as the excuse to create an “emergency financial manager,” who wields dictatorial powers to get rid of union contracts, and slash spending, including for school districts.
This is capitalism’s answer to the crisis it created: destroys jobs and reduce the standard of living of the working population. The vital infrastructure and services that working people depend on and which allow the entire society to function is being destroyed.
This is the cost of capitalism run wild.