From: Reuters
Published April 7, 2008 02:55 AM

Alabama governor says won't bail out Jefferson City

SHANGHAI (Reuters) - The State of Alabama will not under any circumstances bail out the state's Jefferson County, but believes the county can work out its debt crisis on its own, Alabama governor Bob Riley said on Monday.

"Since this is a local county government, the State of Alabama will never be able to go in and assume any of the debt, no matter how legitimate, for municipalities or county governments," Riley told Reuters.

"This will be a process that will have to work out within the county itself," he said during a visit to China to promote investment in his state.

Analysts have said Jefferson County, home to Alabama's largest city, Birmingham, risks what could be the largest U.S. municipal bankruptcy.

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But in response to questions about Jefferson's crisis, Riley added that he believed talks between the county and holders of its debt might be able to avoid bankruptcy.

"I think this will be a situation where a new structure will have to develop, but I see no reason that it should not," Riley said.

Last week, Standard & Poor's cut its rating on some of Jefferson's sewer revenue refunding warrants to default after the sewer system failed to pay $54 million in principal.

Jefferson County reached a negotiated standstill pact with Wall Street under which it agreed to delay until April 15 the $54 million payment, and instead paid $4.2 million in interest.

Last Wednesday, lawyers for the county said it was continuing talks with major debt holders.

In Jefferson County, 160,000 households are connected to the county sewer system, which ran up $3.2 billion in debt in sewer repairs and expansion. Estimates put the average household's share of the sewer system debt at more than $11,000.

Wall Street and New York bankers have recommended that county officials raise sewer rates, which have already quadrupled in the last 12 years.

"That will be up to the county commissioners in Jefferson County. They haven't asked my opinion and I have steadfastly refused to give it," Riley said.

He said Jefferson County's difficulties would not damage the state's credit rating.

"I think that the state has a very good credit rating. We will do whatever it takes to maintain that," he said.

In recent years, several industrial heavyweights, including EADS, the parent of European aircraft maker Airbus, have built or announced plans to build greenfield manufacturing facilities in the state.

Riley, visiting China for the third time, said his delegation would discuss investment opportunities with Chinese companies that have expressed an interest in constructing facilities in Alabama. He did not name the companies.

($1 = 7.01 yuan)

(Reporting by Fang Yan; Editing by Andrew Torchia and Edmund Klamann)

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