At first glance, the bankruptcy of Jefferson County, Alabama, the county that includes Birmingham, looks like a repeat of Harrisburg, Pennsylvania. In Harrisburg, it was the failure of an incinerator overhaul that left the city insolvent. It was an isolated case, since so few municipalities have incinerator overhauls that run into problems. In a seeming parallel, it was a sewer project that caused the financial problems in Jefferson County.
But look closer, and it is not the same at all. Jefferson County’s problems were not so much with the sewer system itself, which is working essentially as planned, but with a badly mismanaged bond issue.
The bungled bond deal was one that Wall Street had its hands in. And Wall Street has its hands in a lot of things. Essentially, Jefferson County is not another Harrisburg, but another Greece. An order of magnitude smaller, but the same essential dynamic.
Jefferson County is obviously not the only place where financiers and officeholders had private profit on their minds. The outcome there lends credence to the thought that there may be a flood of local government bankruptcies in the next three years as the U.S. economy goes through a new series of stresses.