BRADENTON, Fla. - After Jefferson County commissioners on Tuesday approved a restructuring plan for its troubled $3.2 billion of sewer debt, Alabama Gov. Bob Riley said he would not call a special session of the Legislature unless the plan has solid backing from lawmakers first.
A majority of the County Commission this week asked the governor to call a special legislative session to act on components of the restructuring plan that require changes in state law and a statewide referendum to amend the state constitution.
While they've been working to resolve the problem since February, it was only this week that commissioners mounted a massive educational campaign about their plight and how they want to resolve it - without filing for bankruptcy.
Commissioners only began meeting with local members of the county's legislative delegation to detail the restructuring plan this week. And they hired a local public relations firm to work on the sewer debt crisis, including planning for two public forums that are scheduled tomorrow to present the restructuring plan to local residents and explain the pitfalls of filing for bankruptcy.
"The governor's position has always been the same that there's no point in having a special session if the legislators aren't going to support what's proposed," Riley spokesman Jeff Emerson said yesterday.
The governor wants assurance that a majority of lawmakers are ready to pass a plan, before he will incur the cost of a special session, Emerson said.
The governor has spoken to many people and understands the county's crisis, Emerson stressed, noting that Riley made his position clear on an important point yesterday.
"The governor said, 'I don't want bankruptcy. I don't really know anyone who does want bankruptcy,' " Emerson said.
The struggle that is unfolding is deeply rooted in a two-party political system and, to a large extent, in the fact that Alabama is not a wealthy state.
In addition, the state constitution cannot be amended by citizen initiative, and it does not provide home rule powers to local governments. That means they must seek legislative approval for virtually everything they do.
Amending the state's constitution has become an accepted way of doing business. Lawmakers typically go this route, and require either a local or statewide referendum to approve the amendment. The constitution has been amended close to 1,000 times to provide selected local governments with authority to implement programs or specialty taxes.
In Alabama, amending the constitution is similar to a court validating bonds in other states - it prevents future legal challenges. And that's what Jefferson County's legal team hopes to accomplish with the current sewer restructuring plan, portions of which will require amendments to the state constitution.
Jefferson County has been working since February to resolve problems with $3.2 billion of troubled variable- and auction-rate securities, which are covered by out-of-synch swaps.
The commission on Tuesday ratified its action last week to approve forbearance agreement extensions, delaying payments on troubled debt and swaps until Nov. 17, and agreeing to pay $44 million toward the outstanding troubled debt - some of which is being held by liquidity banks.
The latest forbearance represents the county's fourth extension and the agreements are conditioned upon certain steps that require the county to make progress toward adopting a restructuring plan.
The forbearance period could be shortened if the county does not complete those steps, Syncora Guarantee Inc., formerly XL Capital Assurance Inc., said Monday. Syncora made a $35 million claim payment as part of its agreement with the county to insure the sewer bonds. It has $809 million in exposure to Jefferson County's sewer debt.
The commission's president, Bettye Fine Collins, a Republican, and Democrats Shelia Smoot and George Bowman this week voted to move forward with the current restructuring plan and ask the governor for a special legislative session to consider it.
Republican commissioners Jim Carns and Bobby Humphryes have voiced opposition to some of the components of the restructuring plan, which could result in property and sales tax increases to meet bond covenants, and they have supported an alternate proposal that would involve a bankruptcy filing.
Under the restructuring plan, the county would refund outstanding school warrants and use its one-cent sales tax to retire approximately $663 million of outstanding sewer warrants. Since that sales tax is, by law, dedicated to educational needs, the Legislature must approve a bill redirecting the sales tax proceeds in Jefferson County to the sewer warrants.
Lawmakers would also have to approve a proposed backstop of automatic increases in the sales tax in increments of 1/10th of 1%, up to a maximum of five increases, if bond covenants are not met.
An existing occupational tax would need legislative approval to repeal exemptions for professionals such as doctors, lawyers, architects, and accountants. The resulting uniform occupational tax would bring in enough revenue to refund approximately $719 million of sewer warrants.
There has been a year-long legal battle between Jefferson County's legislative delegation and county commissioners over the application of this tax. The county's legal team wants lawmakers to settle it once and for all through an amendment to the state constitution that would require a statewide referendum.
Sewer system revenues and an existing sewer system property tax levy of 0.7 mils, which has been in place since 1898, would be used to refund $1.87 billion of sewer warrants. The sewer system property tax would have a backstop of automatic increases if bond covenants are not met. It would need legislative and constitutional approval.
The backstops are designed to assist in achieving investment grade ratings. Plan authors said the revenue streams in the restructuring plan are calculated conservatively and should avoid the use of the backstops, but the provisions are controversial.
"These taxes represent non-user fees broader and more expensive than most Jefferson County residents can imagine," Commissioner Carns said. He alleged that the with the property tax backstop provision, local homeowners could see tax increases as high as sewer rates have increased over the years. Carns is holding his own public meeting today to discuss various proposals that have surfaced to solve the current financial crisis.
Bowman, who has been appointed by the majority of the commission to work with the county's financial advisers and legal experts, said the current basic restructuring strategy may change as its winds through the political approval process.
"All these things are doable if we can just have our day in the Legislature," Bowman said. "If they close the door without giving us a chance to be heard then I think they've done this entire state a disservice."
Asked what would happen if the governor ultimately refuses to call a special session, Bowman said, "I don't want to cross that bridge until that door is closed."
Late last week, when it appeared commissioners would miss a deadline to extend the forbearance agreements and they would not move forward with the restructuring plan, Moody's Investors Service downgraded Jefferson County's non-sewer debt to junk status.
Standard & Poor's downgraded the debt just above junk status, rating the county's outstanding general obligation warrants BBB from A and its public building authority lease revenue warrants BBB-minus from A-minus.
Although it was inaction on the commission's part that resulted in the downgrades, Bowman said he felt they were premature.
"We put up $44 million to say we've got faith in our plan and the $35 million put up by [Syncora] shows they've got confidence in this plan going forward," Bowman said. "We've put a lot of work into this plan and the revenue streams are solid. We can make it work."
