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updated: 7/26/2011 12:11 PM

Jefferson County hired bankruptcy lawyer Klee

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Jefferson County, Alabama, which may vote in two days to file a record U.S. municipal bankruptcy, hired attorneys who represented Orange County, California, when it sought protection from creditors in 1994.

County commissioners voted 5-0 today to retain Kenneth Klee and his Los Angeles firm Klee, Tuchin, Bogdanoff & Stern LLP. The commissioners have scheduled a July 28 meeting in which they may decide to file bankruptcy, extend negotiations with creditors on restructuring more than $3 billion of sewer bonds or approve a settlement.

Creditors including JPMorgan Chase & Co. and bond insurer Syncora Guarantee Inc. haven't responded to a county proposal seeking to lower the amount it must repay to about $2 billion, while raising sewer rates by 8 percent for the next three years, commissioners said. The county will likely file for bankruptcy if creditors don't respond this week, they said.

"My constituents are saying pull the trigger," Commissioner Sandra Little Brown said at a meeting.

The county, home to Birmingham and a population of more than 658,000, has been under fiscal stress for more than three years after a sewer-bond refinancing collapsed during the credit crisis. Its woes intensified when the state Legislature refused to act after a court struck down an occupational tax in March. The tax generated about a quarter of the county's general-fund revenue, and its absence forced officials to put more than 500 employees on unpaid leave.

Standstill Period

The July 28 meeting will come one day before the end of a 30-day standstill period in which the county and creditors agreed to pursue a settlement.

The county will pay Klee a $50,000 retainer and $500,000 if it moves forward with bankruptcy. Commission President David Carrington said bankruptcy would cost the county $1 million per month. He declined to discuss legal strategy.

Commissioner Joe Knight said the cost may be worth it to settle the county's debt crisis.

"We can afford $1 million to close this convoluted saga," Knight said.

At today's meeting, officials also approved the authority to issue new bonds in the event of a settlement.

--Editors: Jerry Hart, Mark Tannenbaum

To contact the reporters on this story: Martin Z. Braun in New York at Kathleen Edwards in Birmingham, Alabama, at

To contact the editor responsible for this story: Mark Tannenbaum at