Alabama House Panel Approves Bankruptcy Relief Bill

BRADENTON, Fla. — The Alabama House County and Municipal Government Committee passed an amended bill Tuesday that is designed to bring fiscal relief to bankrupt Jefferson County.

SB 567 would authorize any county eligible to file for bankruptcy in the three years before or after the bill’s passage to impose an occupational or sales tax to relieve financial pressures.

The committee amendment would exempt workers who live outside the county from paying the occupational tax. It is not clear if the amendment would ultimately pose legal problems.

The full House on Wednesday is expected to consider the bill, which was passed by the Senate last week.

The tax would remain in effect as long as the county deemed it necessary, though the fiscal relief measures in the bill itself would sunset in three years and no longer be available to other counties in financial trouble.

Currently, only Jefferson County would qualify to use the authority granted by the measure, known as the Alabama Financially Distressed Counties Act.

The act would sunset after three years to eliminate the potential to “incentivize” other counties to file for bankruptcy, according to a source familiar with legislative negotiations.

County commissioners, who are in Montgomery to support the bill, want to implement the occupational tax initially to support the general fund. After previous occupational taxes were overturned in court, the county budget is facing a deficit at the end of this fiscal year, despite laying off hundreds of workers and making severe cuts.

In subsequent years, the county would seek legislative approval to eliminate the job tax and maintain up to a 1% sales tax that currently is dedicated to pay off school warrants. Those warrants are slated to mature in about eight years.

SB 567 also prohibits the county from using the sales or occupational tax revenue to pay debt secured by a specific revenue source. The bill’s language appears to allow revenues to pay debt secured by the county’s full faith and credit.

The bill also requires the establishment of a five-member financial advisory committee to review financial operations and make recommendations to improve the county’s financial affairs.

Jefferson County filed a Chapter 9 petition last November with $4.2 billion of municipal warrants mostly in default. Some $200.5 million is in unsecured general obligation warrants with a full-faith-and-credit pledge, though the GOs are not secured by a promise to raise taxes. Just over $4 billion is outstanding as non-recourse warrants, including $3.14 billion of sewer system warrants.

The bankruptcy of Alabama’s largest county has pressured other issuers in the state, some of whom have faced a market penalty up to 30 basis points on the sale of debt, according to some experts.

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