BRADENTON, Fla. – For the first time in eight years, Jefferson County, Ala.'s general obligation rating has returned to A on the rating scale.
Fitch Ratings raised its GO and issuer default ratings to A from BBB, saying that Alabama's largest county has put finances on a "strong footing" since exiting bankruptcy in 2013.
The upgrade impacts $65.3 million of GO debt. The rating outlook is stable.
Jefferson County has used a combination of "conservative budgeting, dramatic cost reductions, and settlement funds" to build sizable reserves even as revenues continued to decline, analyst Larry Levitz said in a report Tuesday.
"Despite deferred capital and maintenance needs which may eventually entail limited use of fund balance, the county's financial position is expected to remain at high enough levels during periods of economic recovery to provide a cushion for future downturns," he said.
In 2008, the county's ratings plummeted from A to D – the bottom of the junk rating scale - amid the liquidity crisis in the credit markets.
Times have changed.
Jefferson County ended fiscal 2015 with a fund balance of $122.5 million, of which $76.6 million – or 55% of operating expenses – was unassigned.
The capital improvement fund held $29 million in reserves, Fitch said, adding that the county has generated balanced or surplus operations in recent years.
"We have a come a long way in a very short time span," County Commission president Jimmie Stephens said Friday when asked for a comment on the rating upgrade. "We have made the needed adjustments to spending to remain within budget while reallocating those existing resources to meet the needs of our citizens.
"We now must build upon our progress."
As a result of the credit crisis in 2008 and subsequent downgrades of bond insurers, the county's $3.2 billion in auction- and variable-rate sewer debt saw penalty interest rates kick in and payments on associated swaps rose.
The county's financial problems worsened when an occupational tax that provided 20% of general fund revenues was struck down by a state court in March 2011, forcing commissioners to lay off hundreds of employees and make aggressive budget cuts.
In November 2011, Jefferson County filed what was then the largest municipal bankruptcy in U.S. history, though it was later eclipsed by Detroit.
Jefferson County's plan of adjustment was implemented in December 2013 after the county sold $1.8 billion in sewer refunding warrants to shed $1.4 billion in related sewer debt.
The bankruptcy case's disposition is being appealed.
Fitch said factors that contributed to a higher rating include the region's economic diversity and combination of healthcare, banking and professional services, retail trade, high tech and heavy industries.
Jefferson County, which is in the Birmingham-Hoover metropolitan statistical area, had a population of 660,367, according to the U.S. Census Bureau's 2015 estimate.
The University of Alabama at Birmingham is the largest employer with 21,550 jobs.
Under state law, the county does not have home rule and requires that the Legislature approve all tax increases.
"The county's inability to raise revenues independently and limited capacity to reduce spending beyond the sizable cuts already implemented restricts upwards rating migration," Levitz said.
The county's accomplishments have been the result of collaborative efforts by the county commission and management team, and have included reestablishing good rapport with state lawmakers, local city officials, and businesses, according to Stephens.
"Sound fiscal policies, crafted early in our first term, are being followed and offer a road map for continued progress," Stephens said. "As a result the perception of Jefferson County is thankfully changing rapidly."
