BRADENTON, Fla. — Jefferson County, Ala., said Wednesday that it will no longer make payments on its general obligation warrants.
The bankrupt county said it does not expect to resume payments on the GO warrants until they are restructured or reinstated under the county’s Chapter 9 plan of adjustment.
A restructuring or reinstatement of payments depends on the Alabama Legislature providing “a stable, long-term source of general fund revenues to the county,” officials said in a release.
The next principal and interest GO payment of $15 million is due April 1, and will not be paid.
A total of $200.52 million of GOs are outstanding in Series 2001B, 2003A and 2004A warrants. The 2003 and 2004 GO warrants are insured by National Public Finance Guarantee.
“Despite Jefferson County’s decision to default on its general obligation debt, National will ensure that its policyholders will receive all of their principal and interest payments on time and in full while it continues to work with the appropriate parties toward a solution that puts the county’s general fund on a path toward long-term financial stability,” NPFG spokesman Kevin Brown said in a statement. “National remains concerned that the Alabama Legislature’s failure to act in support of the county could have negative repercussions for other municipalities throughout Alabama as well as for the state itself.”
Until now, the county said it has been current on all GO payments except for $105 million of 2001B variable-rate warrants held by banks that provided liquidity.
Jefferson County filed the largest municipal bankruptcy in U.S. history in November when state lawmakers failed to provide financial relief after Alabama courts struck down two state-authorized taxes, and after the county was unsuccessful in restructuring $3.14 billion of defaulted sewer warrants.
County officials have projected they will run out of cash by the end of this fiscal year.
The annual legislative session is half over and no proposal is being considered by lawmakers to provide relief this year.
Since counties in Alabama do not have home rule powers, only state legislators can authorize them to increase taxes and fees.
Jefferson County officials said they take the “responsibility to honor” the general obligation warrants seriously, but GO payments must be suspended to preserve remaining funds to protect the health, safety and welfare of the citizens, and to pay employees and vendors.
The county also has $814 million of outstanding school warrants secured by a sales tax and $82.5 million of lease revenue warrants. It’s not clear if the county is current on those payments.
GO bonds are considered the “gold standard” because investors believe them to be more secure than revenue bonds. However, in a Chapter 9 proceeding holders of GO bonds and notes are considered unsecured creditors whose payments can be stayed, unless a statutory lien is in place, according to a municipal bankruptcy attorney. Jefferson County lists its GOs as unsecured in court documents.
