BRADENTON, Fla. - Speculation about whether Jefferson County, Ala., might file for bankruptcy rose to new heights late last week when Alabama's high court refused to allow the financially ailing county to spend occupational tax revenues while appealing a lower-court ruling that struck down the tax earlier this year.
In addition, two county commissioners Thursday refused to consider general fund budget cuts necessitated by the legal battle over the tax setting off yet another round of politically charged accusations about whether the delay would lead to a bankruptcy filing.
The latest financial crisis has nothing to do with the $3.2 billion of troubled outstanding sewer debt that Alabama's largest county has tried to restructure for well over a year. The sewer debt is in variable- and auction-rate mode and counterparties have terminated associated swaps at an estimated cost of $748 million.
The county's latest troubles began in January when a local circuit court judge ruled unconstitutional the occupational tax that support more than one-third of the general fund budget. The judge allowed the county to spend the tax revenue as state lawmakers considered bills to reauthorize it. But they adjourned their four-month session without agreeing on a reauthorization and the judge told the county to stop spending tax revenue.
The county appealed to the Alabama Supreme Court and filed an emergency motion requesting permission to continue spending tax proceeds while the case is pending. But last Tuesday, the state's high court rejected the county's emergency motion prompting commissioners to begin considering severe cuts.
In a committee meeting Thursday, Republican commissioners Jim Carns and Bobby Humphreys refused to allow budget cutting resolutions to be placed on this week's commission agenda for final approval. That prompted Democrat William Bell to adjourn the meeting without voting.
"We are either going to sink together or we are going to rise together," Bell said, according to the Birmingham News. "I refuse to get into a political battle with these two gentlemen while the county goes down the drain."
Commission president Bettye Fine Collins, who did not attend the committee meeting, said later that absent budget cuts, the county's options included bankruptcy.
"This is not the kind of behavior that instills confidence in investors," said Andreas Rauterkus, assistant professor of finance at the University of Alabama in Birmingham. "While a lot of the things that are happening to the county are not directly the fault of the county or the commission, it is the lack of action that I believe frustrates the markets and will make it very hard for the county to raise debt."
"Perhaps at this point, bankruptcy is the best option," Rauterkus said. "The reputation of the county could not be any worse than it is right now and bankruptcy would force the parties involved to actively find a solution to all of the issues."
Moody's Investors Service rates the county's general obligation debt Caa1, while Standard & Poor's assigns a D rating to the county's $120 million of Series 2001B variable-rate GO warrants, and a B rating to the county's fixed-rate GO debt. The GOs are not rated by Fitch Ratings.