BRADENTON, Fla. — Jefferson County commissioners Tuesday began making plans for placing nearly 1,000 workers on administrative leave without pay as they await legislative action to help solve the Alabama county’s ongoing financial crisis.
Layoffs could begin Monday and last until Sept. 30, the end of the fiscal year.
Workers will be placed on leave without pay if the state Legislature fails to pass a bill this week providing the county with limited home rule, which would give commissioners flexibility to raise certain taxes that would generate up to $50 million in revenue. Alabama counties do not have home-rule powers and the ability to raise taxes or other revenues must be authorized by the Legislature.
The last day of the regular session is Thursday, and a local lawmaker has contested the limited home-rule bill. If the lawmaker does not drop the objection, the Legislature cannot vote on the bill before session ends.
The county is in dire financial straits because the Alabama Supreme Court earlier this year struck down a law passed in 2009 authorizing commissioners to levy occupational and business license taxes that generated $77 million for the general fund. The county also is dealing with its default on $3 billion of sewer debt.
Today’s scenario is similar to the situation that played out nearly two years ago when state lawmakers could not agree on financial relief for the county when a different occupational tax was struck down by the courts. Nearly 1,000 workers were laid off then.
While the Legislature met in special session in 2009 and passed a bill with a replacement occupational tax, it was struck down by the court this year. Jimmie Stephens, head of the County Commission’s finance committee, said things are different now than they were in 2009. He and four other commissioners won their seats last fall.
Stephens said he hated having to lay off workers but if the bill does not pass, 964 county jobs will be placed on leave without pay to maintain cash flow throughout the end of the fiscal year. The commission is committed to living within its means to avoid filing for bankruptcy, he said.
“If they don’t give us the revenue [by passing the bill], make no mistake, we’ll begin Monday morning not begging for a special legislative session but tailoring the amount of service to the amount of revenue we have,” Stephens said. “Right now what we’re trying to do is keep within our cash-flow constraints in order for government to function and for us to meet our debt-service requirements. Based on my projections we will be able to do both.”
The county has $4.5 billion of outstanding debt, most of it with dedicated revenue streams, including the troubled sewer debt and school warrants secured by a sales tax. Jefferson County has been beset by financial problems for several years because the sewer warrants have not been restructured.
The county disclosed last Friday that it had received letters from the Internal Revenue Service, which wants to examine $2.3 billion of sewer warrants issued in 2003.
The county has hired the Birmingham-based firms of Presley Burton & Collier LLC and Balch & Bingham LLP to represent it in the tax controversy, Hobson Presley, the founder of Presley Burton, said Tuesday. County attorney Jeff Sewell is also representing the county. Presley declined to discuss the IRS inquiry because the case is ongoing. Balch & Bingham is also the county’s disclosure counsel.
Jefferson County said it received letters dated May 2 stating that the IRS had selected the Series 2003B and the 2003C refunding warrants “for examination to determine compliance with federal tax requirements.”
About $95.8 million of the $2.3 billion of 2003 sewer warrants are fixed rate while the rest is either in variable-rate demand or auction-rate mode, on which the county has defaulted. Most of the debt is owned by banks and insurers.
The IRS could be looking at arbitrage issues involving the underlying debt or related swaps, or it could be following up on a whistleblower case, said a bond attorney who did not want to be identified and who was not involved with Jefferson County’s transactions.
The county may also be included in a new IRS audit program looking at deals under financial distress, and the potential for reissuance as a result of a restructuring. There are a number of ways arbitrage liability can be affected by a restructuring, according to the expert.
In May, the IRS’s tax-exempt bond office said it had received referrals of around 30 whistleblower claims of potential abuses in the municipal bond market.