BRADENTON, Fla. - Debt-laden, cash-strapped Jefferson County, Ala., may immediately have to spend more than $50 million because of Tuesday's ruling by the Alabama Supreme Court, which struck down the county's occupational tax.
The ruling, one observer said, could eventually drive the county closer to filing the largest municipal bankruptcy in U.S. history.
The state's high court on Tuesday said a lower court judge was correct when he ruled Jan. 12 that state lawmakers had repealed the tax 10 years ago.
What happened then and now highlights Alabama's complex political system.
When the full Legislature is in session, local legislative delegation members are typically allowed, as a matter of courtesy, to vote on local bills affecting their jurisdiction. Sometimes lawmakers from other jurisdictions vote too, but that is rare.
In 1999, a majority of Jefferson County's local delegation in attendance at that fateful legislative session repealed the occupational tax. And since then, the Jefferson County commission has successfully defended itself against as many as 16 lawsuits that argued the tax had been repealed.
"This is the first [suit] that won," said attorney Sam Hill at Hill Turner LLC in Birmingham, the firm that brought the successful class action lawsuit decided by the Supreme Court this week. The class may represent as many as 300,000 people employed throughout Jefferson County and who pay the occupational tax, Hill said.
Although Hill estimated that the county has collected $550 million since the occupational tax was repealed in 1999, the amount that now must be refunded only goes back to the original ruling on Jan. 12 by Circuit Judge David Rains.
Hill estimated that could cost the county around $40 million, plus the expense of refunding the tax.
Late Tuesday, Jefferson County Commission President Bettye Fine Collins said that the ruling could mean the county will have to come up with as much as $50 million to be returned to those from whom it was collected since January.
Tuesday's court ruling may create as many questions as it resolved, especially since Gov. Bob Riley and the Legislature tried to deal with the issue in a recent special session.
The occupational tax crisis recently has even overshadowed concern about Jefferson County's troubled $3.2 billion of sewer debt and $766 million of swap termination fees. Talks to restructure the non-recourse sewer debt have long stalled.
After his ruling in January, Rains allowed the county to continue spending tax proceeds while the county appealed and to give the Legislature time to work on a solution. But local lawmakers couldn't agree on a bill during the regular session that ended in mid-May. Rains then ordered the county to put tax revenues in escrow, where $17 million may now be held, according to published estimates.
Without the occupational tax revenues, which support nearly one-third of the general fund budget, county commissioners in early August laid off nearly 1,000 workers and severely cut services.
As the county and its sheriff asked the state for assistance, the crisis once again focused international attention on Alabama, and increased speculation about whether the state's largest county might file for bankruptcy.
Riley called a week-long special session of the Legislature that started Aug. 10.
"There was a crisis in Jefferson County that could have affected the whole state so Gov. Riley did what was in best interest of Jefferson County and the whole state," said Riley's press secretary, Todd Stacy.
To pass a bill, the entire Legislature must be in session. But once again, under Alabama's political system, Jefferson County's local delegation was called upon to deal with the occupational tax problem.
The local delegation eventually passed a bill with several elements. One part of the bill was designed to "cure" the immediate legal problem stemming from the 1999 repeal vote by ratifying and confirming the actions of the County Commission "in previously levying and collecting the taxes."
Another section of the bill reenacted the occupational tax. It also eliminated previous exemptions and it lowered the tax rate to 0.0045% from 0.0050% in January.
Riley signed the bill within hours after its final passage on Aug. 14.
"Gov. Riley signed the bill with full confidence that it would provide a legal, appropriate way for Jefferson County to mitigate its current financial crisis," Stacy said, noting that the bill was vetted by the governor's legal advisers before it was signed. "The governor signed it will full confidence that it would pass legal muster."
But there are differences of opinion about whether the entire bill signed by Riley on Aug. 14 is constitutional.
Hill, the attorney who won the class action suit that won repeal of the tax this week, believes the bill allows the county to legally re-enact the occupational tax but that requires the county commission to pass an ordinance to implement it.
However, the curative element of the bill intended to legalize collection of the tax since being repealed is "completely invalid," according to Hill.
"You can't create a 10-year-old retroactive tax," he said. And that means the county must return occupational tax revenues to those from whom it was collected since Jan. 12.
Late Tuesday, Collins said she had not discussed the full potential impact of the high court's ruling with county attorneys.
The county's special attorney handling the case could not be reached for comment yesterday.
A public finance banker familiar with Jefferson County's situation said he also believed a portion of the Legislature's recent bill may be unconstitutional, which could leave the county in a predicament.
"Longer term," the banker said, "there are substantial implications and I think this may move the county closer to bankruptcy."
