The same debt issues have been circulating in Alabama, and they still have not been resolved with the creditors. There is a lot of negotiating, but they are not paying their balance down. Since a lot of the government’s money is put into roads, run the courts, perform public services, and other things that help the state function, there is nothing that can be liquidated or removed from the process in order to make the money to pay the creditors that are owed. They are continuing to pay everyone that is owed, and to continue business as usual while Chapter 9 sorts out a payment plan for the state. Going through municipal bankruptcy is painful and very expensive so they wish to stay away from it as much as they can and try to get the creditors their money.
California filed for bankruptcy in 2008, and emerged from the long process only earlier this very month. The total that was spent on lawyer fees, not counting the amount that was needed to pay creditors back summed up to around $10 million in the end. The interest of the bonds that the state owns is what is holding them down when it comes to paying off their debt, and being able to get out of the debt that they have. This is because the percentage of the interest keeps increasing over time, and this is a lot for the state to keep up with. They are hoping not to have a municipal market meltdown because of the underfunded pensions, falling tax revenue, and excessive debt.
A lot of the debt came from fraud within the system that has since been taken care of, but the debt remains. Several of the county commissioners ended up in prison because of this wrong doing, but there was not much that could be done to undo what they already did. They are trying to continue public services, but the levels that are received are drastically cut in half. They are forced to cut anywhere from $40 to $100 million in their budget for these types of things throughout the state that they once did not have a problem with. Just in the past year the state laid of several hundred employees, and cut the County Sheriff’s office and limited them on what they could do, on top of other cuts and stipulations.