BRADENTON, Fla. - Moody's Investors Service on Friday continued its negative outlook on Jefferson County, Ala.'s Caa1 general obligation rating despite a recently passed bill essentially curing legal deficiencies surrounding the county's occupational tax.
In mid-May, a local judge ordered that occupational tax collections be held in escrow until the Alabama Supreme Court affirmed or rejected a ruling earlier this year striking down the tax. Since the tax supports about one-third of the general fund, the county recently was forced to lay off about 1,000 employees and severely cut services.
In addition to keeping occupational tax revenues out of Jefferson's reach for general fund operations, Moody's also said the county in March and September missed payments on some variable-rate GO bank warrants, which constituted events of default.
"Moody's believes that the county will continue to miss these payments until there is a resolution to the financial crisis related to the county's sewer system, and that GO bank warrant holders are likely to face some loss of full repayment once the county either restructures the GO debt or begins to make bank bond principal payments," said a report by analyst Geordie Thompson. "We also believe that there is significant risk that the county will avail itself of federal bankruptcy protection."
The Alabama Legislature met in special session Aug. 10-14, and within hours of passage Gov. Bob Riley signed a bill affirming the constitutionality of the occupational tax the county had collected for years.
The Legislature's action, though, didn't overcome the court's order requiring tax revenues to be kept in escrow while the case was appealed.
The high court heard oral arguments in the case last week, but it could be weeks or months before it makes a determination, creating "uncertainty around the county's near-term financial stability," Moody's said.
Still unresolved are problems with the county's $3.2 billion of variable- and auction-rate sewer debt, plus $766.3 million of swap termination fees.
