BRADENTON, Fla. – Jefferson County, Ala., plans to pursue a refunding to generate new revenue for infrastructure projects, even though it faces a new legal challenge.
Alabama's most populous county plans to return to the bond market for the first time since restructuring its debt in 2013 to refund some or all of the $445 million of outstanding limited obligation education refunding warrants.
The deal is scheduled to price the second week of July, regardless of a petition filed by litigants requesting the U.S. Supreme Court to review a lower court decision authorizing the refunding.
“We plan to proceed on our current schedule,” Jefferson County Commission President Jimmie Stephens told The Bond Buyer Tuesday. “The county expects that the court will deny [the] petition.”
According to attorney Calvin Grigsby, the writ of certiorari was filed on Thursday, the last day to request that the high court review the bill passed in 2015 by the Alabama Legislature authorizing the refunding.
Grigsby filed for the high court review on behalf of his clients, Jefferson County State Reps. Mary Moore and John Rogers, Birmingham Water Works Board member William Muhammad, and Andrew Bennett, a former assistant county tax assessor.
They lost an appeal of the refunding case before the Alabama Supreme Court in April, and want the Supreme Court to review constitutional provisions that they argue were violated, according to the petition.
The same litigants are appealing the county’s bankruptcy case.
The 11th Circuit Court of Appeals in Atlanta heard oral arguments Dec. 16, and have yet to rule on an appeal filed by Jefferson County.
“We were hoping that this group would accept the Alabama Supreme Court's ruling, but this has been their pattern and practice of behavior against the county at every opportunity,” Stephens said, referring to their suits against the county regarding the refunding warrants.
Grigsby said his case centers on lawmakers’ approval of the state law that authorized the county refunding and what he believes was an improper vote by the Legislature in approving the Jefferson County bill.
He contends the process violated the Alabama constitution.
While an Alabama district court refused to validate the refunding warrants based on issues brought by Grigsby’s clients, the Alabama Supreme Court overturned that ruling in April setting the stage for the deal to be marketed.
Grigsby said constitutional issues remain problematic, even though the warrants have been validated.
His argument is based on a statewide vote in Alabama on Nov. 8, 2016, which led to the enactment of constitutional Amendment 14 ratifying hundreds of local bills passed by state lawmakers since 1984 that did not comply with voting requirements in Alabama's constitution.
The local bills included one that state lawmakers approved for Jefferson County’s education warrant refunding.
“No state can change constitutional rights retroactively without violating due process of law,” Grigsby said, when asked to comment on the petition before SCOTUS. “If so, there would be no such thing as a supreme law and no immutable rights and therefore no democratic government.”
Grigsby contended that if SCOTUS agrees with arguments cited in the petition, the refunding warrants could become invalid.
Jefferson County plans to release a preliminary official statement Thursday. It will include a disclosure about the petition before the Supreme Court, according to Stephens.
When asked if there was anything the county would like investors to know about the health of the county and why the refunding is essential, Stephens said, “We will speak to investors via the POS.”
The deal will refund the county’s 2004-A fixed-rate limited obligation school warrants and the 2005-A auction-rate school warrants, which are outstanding in the total amount of $445.08 million.
The 2004-A and 2005-A warrants are currently secured by a dedicated 1% local sales tax that will expire when the refunding closes.
Stephens said it's impossible to calculate whether there will be any net present value savings because a portion of the deal will take out auction-rate securities
When asked if the new legal challenge could affect interest rates investor demand for the bonds, he said, “We will have a better handle after pricing.”
The county has met with S&P Global Ratings and Fitch Ratings.
S&P assigned AA ratings and a stable outlook to the 2017 refunding warrants.
The refunding warrants will be secured by a new 1% sales-and-use tax that will be effective when the deal closes.
Based on historical sales tax collections, S&P said net pledged revenue would provide a “strong” 3.68 times coverage of maximum annual debt service, which would occur in 2035.
The amortization schedule for the upcoming deal will be level, with about $27.36 million being retired annually through fiscal 2037 before declining to $2.3 million until final maturity in fiscal 2042, according to S&P analyst Jim Tchou.
Jefferson County is home to 660,000 residents. Birmingham is the county seat.
“Based on our most recent state-and-local-government-credit-conditions forecast, we believe the outlook for the region is bright with continued growth expected through 2018,” Tchou said.
The Jefferson County Commission will approve a new 1% sales tax that will be pledged to pay debt service on the warrants first, before any other funding obligations established in the state act.
When the Legislature approved the refunding act in 2015, Stephens said that the county had maintained a structurally balanced budget since emerging from bankruptcy.
He said the county also needed additional revenue to resume paying for services such as paving local roads and infrastructure improvements.
According to the state act, after debt service is paid $36.3 million a year of sales tax revenues will go to the county's general fund to be used as needed.
Other collections, to be distributed annually, will provide: $18 million to the county's public school systems; $3.6 million to a community service fund for use by Jefferson County legislators; $2 million to the Birmingham-Jefferson County Transit Authority for 10 years, and $1 million a year after that; and $500,000 a year to the Birmingham Zoo.
After all distributions, any remaining sales tax revenues will go to the county’s general fund.
According to the county’s March 28 annual disclosure report, the 1% education local sales tax has increased in recent years, a sign the local economy is on the upswing.
Tax collections produced $100.37 million of revenues in 2014, $103.7 million in 2015, and $104.8 million in 2016.
Raymond James and Associates Inc. and Stifel, Nicolaus & Co., will be co-senior managers for the negotiated deal. Other firms in the syndicate have not been announced.
Public Resources Advisory Group and Terminus Municipal Advisors are co-financial advisors for the county. Balch & Bingham is bond counsel. Waldrep, Stewart & Kendrick LLC is disclosure counsel. Bradley Arant Boult Cummings is underwriters’ counsel.
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Corrected June 21, 2017 at 1:33PM: An earlier version incorrectly said a decision by the U.S. Supreme Court might not impact the validity of the education refunding warrants.