BRADENTON, Fla. — As Jefferson County, Ala., defends its bankruptcy plan, the county must also clear new legal hurdles in order to return to the bond market later this year.
Some of the opponents of the county’s Chapter 9 reorganization plan are also challenging court validation of a bond refunding state lawmakers approved this year to provide the cash-strapped county with a source of new revenue.
Revenue freed up by the refunding will replace about $35 million of the $70 million Jefferson County lost when a court struck down an occupational and business tax in 2010, forcing nearly 1,000 employee layoffs and dramatic cuts in public services.
Hit by the lost revenue and unable to restructure $3.2 billion in troubled sewer debt, the county filed for bankruptcy in November 2011 and emerged with a reorganization plan two years later.
The case has been under appeal since.
Despite its reduced revenue stream today, county departments and many services have been restored but there isn’t funding for pent-up building, road and bridge repairs or improvements, commission president Jimmie Stephens said Wednesday.
“We are getting the job done but desperately need this revenue to improve the quality of life for our citizens,” Stephens said when asked for a comment about the bond validation challenges. “Our county buildings have deferred maintenance that needs to be addressed.”
One group opposing the validation said the numbers don’t add up. The county’s dire financial needs are “belied by substantial fund balances” of $155 million in the 2014 audit, according to a brief filed Monday by county tax assessor Andrew Bennett, state Reps. John Rogers and Mary Moore, and county resident William Muhammad.
The four are also among 13 people appealing Jefferson County’s bankruptcy exit.
“For anyone to state that the county does not need the funds, simply has not looked at our decaying infrastructure or simply doesn’t care,” Stephens said.
Jefferson County is planning its return to the bond market later this year.
It will be the first financing since emerging from bankruptcy.
The deal will refund the $1.05 billion of limited obligation school warrants issued in 2004 and 2005 - now outstanding in the amount of approximately $595 million – and backed by a one-cent sales tax dedicated by general state law to financing public school improvements or to retire school-related debt.
The refunding plan will allow the county to pay the debt service on about $595.5 million of refunding warrants with a new sales tax authorized by the Legislature this year.
Approximately 40% of the proceeds from the new sales tax will used to pay debt service on the refunding warrants. The proceeds remaining after payment of debt service will be used for other specific purposes, such as the county’s general fund, the Birmingham-Jefferson County Transit Authority, and the Birmingham Zoo.
The new sales tax was authorized in House Bill 573 and signed by Gov. Robert Bentley in May.
In August, the county
Subsequently, two cases challenging the validation were filed – one by Jefferson County resident Keith Shannon and a separate case by Bennett, Rogers, Moore and Muhammad.
In both cases, plaintiffs argue that HB 573 is unconstitutional.
Calvin Grigsby, an attorney, financial advisor, and former broker-dealer, also questioned the county’s need for new revenue.
Grigsby, who represents the Bennett group in the bankruptcy appeal and the validation case, said he believes that if the sales tax revenue is needed to fund infrastructure needs now, then the county misrepresented its insolvency and the ability to pay the school warrant debt when it filed for bankruptcy.
“The county having…$156 million in excess fund balance to pay school warrants and $155 million in unrestricted cash shows the bankruptcy was filed fraudulently,” he said in an email.
The brief filed on Monday, co-authored by Grigsby, that questions the county’s current finances does not appear to discuss the county’s fiscal condition when the bankruptcy case was filed nearly four years ago.
Stephens said the commission was forced to cut the general fund budget by $110 million after the occupational and business license tax was struck down in 2010.
“We were not able to provide basic services in a reasonable manner to our citizens,” he said.
The county is currently responsible for maintaining more than 2,000 miles of roads but much of that has been deferred, he added.
Some market experts have suggested that Jefferson County faces a rocky return to the market given political undertones that led to its Chapter 9 bankruptcy, while others have suggested that any future deal might require extra credit support.
The school warrants to be refunded later this year were untouched in the county’s bankruptcy.
The case appealing the county’s bankruptcy exit involves only the county’s sewer debt. That case is continuing to move through the briefing stage before the 11th Circuit Court of Appeals in Atlanta.
Jefferson County has asked the appellate panel to overturn a lower court judge’s ruling, which could result in revocation of a key credit factor supporting $1.8 billion in sewer refunding warrants the county issued in 2013 to write down $1.4 billion in related debt.
The county’s reorganization plan authorizes the bankruptcy court to retain jurisdiction over the 40 years that the sewer warrants remain outstanding to ensure that the county provides adequate funds to pay debt service.
