BRADENTON, Fla. — The Alabama Senate has passed legislation aimed at helping bankrupt Jefferson County, though it’s not clear how effective the measure would be due to various restrictions in the bill.
The Alabama Financially Distressed Counties Act was approved Thursday on a vote of 16 to 11.
The bill has been sent to the House, which meets Tuesday through Friday. The last day of regular session is May 21.
SB 567 authorizes counties in bankruptcy to impose a sales tax up to 1% or an occupational tax up to 0.5%, but only for three years.
It limits the amount of tax that can be collected to 20% of the largest general fund budget over the three years before the county filed for bankruptcy.
Only Jefferson County would currently qualify for the limited benefits provided by the bill, which was sponsored by Senate Majority Leader Jabo Waggoner, R-Vestavia Hills.
Waggoner is Jefferson County’s longest-serving legislator.
He told fellow senators that although “fiscal conservatives are at odds with a desire not to raise taxes on the one hand, and the inherent irresponsibility of not taking responsibility for ones financial obligations,” his measure merely gives Jefferson County the ability to deal with its financial problems.
If county commissioners raise taxes too much and fail to make enough cuts, they will have to face voters, Waggoner noted.
“So this gives control to Jefferson County voters to decide how to restore the solvency of their county,” he said.
Waggoner also reminded lawmakers that Jefferson County has “the unfortunate distinction of being the biggest municipal bankruptcy in American history.”
The county filed a Chapter 9 petition last November with $4.2 billion of municipal warrants mostly in default.
Some $200.5 million is in the form of 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 secured by a dedicated revenue stream, including $3.14 billion of sewer system warrants.
Only the Legislature can authorize Alabama counties to raise taxes, and lawmakers have failed the past few years to allow Jefferson County to replace occupational taxes that were struck down by the courts.
The lost revenue has forced the county to lay off hundreds of workers and reduce services, but a deficit is still expected at the end of this fiscal year in September.
With severe restrictions on how much revenue the county could raise, and a sunset after three years, it is unclear how helpful SB 567 would be toward resolving the county’s fiscal problems or enabling it to emerge from bankruptcy.
“The bill keeps pressure on the county to cut spending and creditors to forgive debt,” said Matt Fabian, managing director at Municipal Market Advisors. “It does nothing to reassure potential new lenders in any county-secured restructuring.”
In addition to financial restrictions, the bill would prohibit using the sales or occupational tax revenue to pay non-recourse debt or debt secured by a specific revenue source.
It appears to allow revenues to be used to pay debt secured by the county’s full faith and credit.
If passed by the House as it is currently written, the bill would require the county to establish a five-member financial advisory committee to review financial operations and make recommendations on improvements in the county’s financial affairs
The committee would be dissolved after the county emerges from bankruptcy.
Jefferson County Commissioners met in special session in Friday to analyze the bill.
