Even some of the people who helped pitch a bid to bring Amazon’s second headquarters to Jefferson County knew it was a long shot.
Alabama’s most populous county has been out of bankruptcy just four years, and continues to fight an appeal of its Chapter 9 exit plan.
Nonetheless, county officials joined those from Birmingham, the county seat, as well as local businesses and the state government to submit a still-secret bid to the world's largest online retailer, which is looking for a second headquarters site to complement its Seattle base.
The county’s long history of financial problems probably wasn’t why Birmingham didn’t make Amazon’s Jan. 18 short list, said bankruptcy attorney James Spiotto, noting that automaker Mercedes-Benz recently expanded in Alabama.
The German firm announced in September a $1 billion plant expansion an hour away from Birmingham in Tuscaloosa, and several automotive suppliers in the Birmingham-Jefferson County area have announced their own expansion plans – a sign that the local economy is revving up.
“Only Amazon knows,” Spiotto, of Chapman Strategic Advisors, said about why the bid didn’t make the first cut, in which Amazon narrowed the field of contenders to 20 from 238. “However, I’ll say this, the stigma of bankruptcy has always been better not to have, than to have.”
Jefferson County Commissioner David Carrington, who led the county’s negotiations during the Chapter 9 case, said bankruptcy has not been mentioned by new business owners considering a move to the area since he became chairman of the county’s economic development efforts after being elected to his second term in November 2014.
“Based on Amazon's criteria, Birmingham was at best a long shot but if you don't swing the bat, you won’t hit the ball,” Carrington said. “Our proposal was visionary and transformational for a visionary and transformational company. We didn't win this one, but we're better prepared to compete for the next one.”
The Birmingham Business Alliance, which helped spearhead the bid, said Birmingham, Jefferson County, and the state of Alabama experienced “tremendous value” as part of the process of developing the offer.
“There was a true collaborative spirit on local, state and regulatory levels,” said Rick Davis, BBA’s senior vice president of economic development. “We felt our proposal was comprehensive and had a clear-cut vision set for Amazon in terms of what we could offer regarding both workforce and all the other issues important to the company - and how we could grow together.”
The BBA declined to release details about the bid, including how much in financial incentives were offered.
Commission President Jimmie Stevens said he also believes the bankruptcy appeal didn’t factor into Amazon’s decision not to consider Birmingham further.
“The appeal becomes more moot with each passing day,” Stevens said Monday. “The [sewer] warrants are all being paid and the plan of adjustment is being followed.”
The county’s highly leveraged sewer system was a main reason the commission filed for reorganization on Nov. 9, 2011. The loss of an occupational tax that supported the county’s general fund, which was struck down by the courts, also pushed the county into filing for Chapter 9.
The sewer system is producing revenues above projections, while expenses are below projections, Stephens said.
Jefferson County emerged from bankruptcy in December 2013 after closing on $1.8 billion of 40-year sewer warrants to write down $3.2 billion of old sewer debt, resulting in an overall 40% haircut to bondholders.
The case has remained alive because of an appeal filed by a group of local residents on the sewer system who call themselves “ratepayers,” making it one of the longest ongoing Chapter 9 cases among large municipalities, according to Spiotto.
Jefferson County contends that the appeal was mooted by closing on the sale of the new sewer warrants, and has argued that the ratepayers failed to request a stay that would have delayed implementing the confirmation plan as required by the code. The county also argued that it is unlikely there can be any relief for the ratepayers because unwinding the bankruptcy plan would inequitably and “adversely affect third parties that received distributions from the plan and third parties who purchased new sewer warrants" who relied on the plan.
U.S. District Judge Sharon Blackburn, who presides over the ratepayer’s case, rejected the county’s mootness argument and denied its motion to dismiss the appeal in September 2014.
The county filed an interlocutory appeal of that decision to the 11th Circuit Court of Appeals in Atlanta in April 2015, where the case remains unsettled. The appellate justices held oral arguments on the county’s appeal in December 2016.
While not unprecedented for an appellate matter to be under advisement more than a year, that length of time is on the long side, said bankruptcy attorney John Whitlock with Locke Lord LLP, who is not involved in the case.
“I am speculating here, but it is possible that, even if the court is unwilling to dismiss the appeal on mootness grounds, the court may be having difficulty fashioning any relief for the ratepayers that does not adversely affect the settled rights of third parties including the holders of the new securities issued at the consummation of the plan in 2013,” Whitlock said.
This extended post-consummation appeal technically extends the completion of the case, but Whitlock said Jefferson County issued its new debt in 2013 and has been running its affairs outside of bankruptcy for over four years.
“So, while the case is still technically open, and the appeal still leaves open the possibility of some modification of the plan, my assumption is that the county has moved on as a practical matter,” he said.
If the 11th Circuit Court of Appeals sides with Jefferson County, the decision would end the case, Spiotto said. However, he added, ratepayers could try to appeal to the U.S. Supreme Court where obtaining a writ of certiorari is difficult to obtain.
The ratepayers have argued that a provision in the confirmation plan violates the constitution. That provision allows the bankruptcy court to ensure Jefferson County implements sewer rates that service the debt, for as long as the sewer warrants are outstanding.
“It is baked into the plan and there’s historically a good reason for that,” Spiotto said, referring to the bankruptcy court supervision over sewer rates. Before filing for bankruptcy, a prior county commission voted not to comply with covenants to raise sewer rates, sending the warrants into default.
Spiotto said the appellate judges could issue a ruling that carves out the constitutional issue, which would send it to an Alabama state court for a decision.
County attorneys have argued that bankruptcy court oversight was a prime security feature that lured investors to purchase the 2013 warrants.
Although the appeal has taken longer than he anticipated, Stephens said he remains confident that the county will prevail.
“The county has made great strides since emerging from bankruptcy,” he said. “We have worked with our legislators to obtain a new general fund revenue source that should secure the future of our great county.”
In 2015, the Alabama Legislature passed a bill authorizing the county to implement a new 1% special sales tax and to refund outstanding school warrants. Although there was a legal challenge, the county prevailed.
On July 13, 2017, Jefferson County issued $338.9 million of limited obligation warrants backed by a new sales tax to refund the county’s outstanding school warrants.
The deal allowed the county to pay debt service on the refunding warrants and spend surplus sales tax revenue for various initiatives. The county plans to use $25 million for transportation projects, $10 million for economic development projects, and any remaining on needs such as funding other post-employment benefits.
In a move to spur economic development in downtown Birmingham, Stephens said the County Commission voted Jan. 11 to allocate $30 million - $1 million a year over 30 years for debt service – toward the construction of a 55,000-seat, open-air stadium on downtown property owned by the Birmingham-Jefferson Convention Complex.
Although $174 million project by the BJCC still requires a financial commitment from the city, local officials hope the stadium will be ready for the new United Soccer League team - Birmingham Legion FC - to use in 2019.
Carrington, the commission’s economic development representative, said the county’s commitment toward the multi-use facility is only “a fraction of the financial puzzle.”
“The commission views this new facility as an economic development stimulant that will become an integral part of the metro area's re-branding and positioning,” he said.
Carrington, a Republican who is serving his final year on the board, ended a gubernatorial bid last fall saying “it just wasn’t meant to be.” Since he was first elected to the Jefferson County Commission in 2010, Carrington said his goals have been accomplished.
“Today, Jefferson County's government is fiscally and operationally restored with no new taxes and more than a 1,000 fewer employees,” he said. “In retrospect, Jefferson County is the only government I can think of - federal, state or local - that has actually ‘drained the swamp.’"
Carrington said it is possible that the county’s bankruptcy appeal will remain unsettled after his last day as a commissioner on Nov. 13, although it isn’t probable.
After leaving office, he plans to continue working as the president of RacingUSA.com, an independently-owned NASCAR merchandise store, and writing his “tell all” book about what once was the nation’s largest Chapter 9 case.
“I would like to finish my book on untangling the mess in Jefferson County, or should I say draining the swamp,” Carrington said. “And I'm seriously considering opening a consulting firm focusing on multiple government issues from organizational structure, to financial crisis management, to economic development.”