by PJ on 8/31/2008 10:12:00 AM

Talk about being in the sewer. I lived in Orange County,CA in 1994 when the county went bankrupt; now that BK's standing as the largest municipal bankruptcy in U.S. history is being threatened by Jefferson County, Alabama. Over sewer bonds. $3.2 billion of them, to be exact:

Alabama's largest county offered a plan Friday to restructure its $3.2 billion sewer debt and, at least for now, put off filing the largest municipal bankruptcy in U.S. history.

Gov. Bob Riley said an attorney for Jefferson County proposed restructuring the bond debt at a lower, fixed rate over a longer term, and Wall Street creditors allowed the county to delay any further interest payments at no cost until Sept. 30 ...

The county had the cash to make a $2 million interest payment that was due Friday, but Commissioner Jim Carns said officials must decide whether to continue making payments indefinitely or file for bankruptcy because its obligations far outstrip revenues from the sewer system.

Carns, who did not attend the meeting, said the county must stop the bleeding.

"It's a matter of whether we can get an agreement to stop it or whether we have to get court protection to stop it," he said.

Jefferson is Alabama's most populous county with about 658,000 residents and includes the state's biggest city, Birmingham....

Acting at the suggestion of outside advisers, the county borrowed money for the project on the bond market in a complex and risky series of transactions. When the mortgage crisis hit and banks began tightening up on their lending, the interest rates on the debt ballooned.

Another unforseen effect of the credit crunch.