BRADENTON, Fla. — Lawmakers representing Jefferson County refused to allow the full Alabama Legislature to debate a bill that would have helped the county restructure nearly $3.2 billion of troubled sewer debt. The bill allowing for a diversion of sales tax revenue was seen as the county’s best hope for avoiding what would be the nation’s largest ever municipal bankruptcy.
The legislation would have allowed the Jefferson County Commission to use excess local sales taxes currently dedicated to schools to help bail out their over-leveraged sewer system. But it failed to even come to a vote before the local legislative delegation.
The bill needed to be approved by local lawmakers this week to be considered on the floor before the regular legislative session ends next Friday, according to a state official.
The head of the County Commission yesterday told reporters that the county would continue to try and avoid bankruptcy, but she didn’t suggest what alternatives to the legislation it could now pursue.
Jefferson County, home to Birmingham, has been negotiating to restructure the troubled variable- and auction-rate sewer debt for more than 14 months. When talks stalled late last year, commissioners asked Gov. Bob Riley to become a facilitator. He negotiated more than $1 billion in concessions with regard to a plan that would enable the county to restructure the debt, but it required an additional source of funding beyond sewer system revenues.
A majority of county commissioners, led by President Bettye Fine Collins, has consistently said that the only source of additional funding available to the county is excess revenue from a locally collected one-cent sales tax dedicated, by state law, to educational needs. Less than two weeks ago, three of the county’s five commissioners passed a resolution asking the Legislature to pass a bill that would allow them to use the excess education sales tax to help pay down the sewer debt.
“It’s dead,” state Rep. John Rogers, D-Birmingham, told the Birmingham News Thursday when asked about the fate of the sales tax bill. Rogers, chairman of the local House delegation, refused to bring the sales tax bill up for a vote. Rogers also suggested that the county may be preparing to file for bankruptcy.
“When political will fails, it’s time for investors to be careful,” Matt Fabian, managing director at Municipal Market Advisors, said in reaction to the news. “Buyers have to insulate themselves against loss and illiquidity by getting more yield and spread out of any security sold by an Alabama issuer.”
Fabian began warning potential investors last fall to carefully consider purchasing debt of Jefferson County as well as the state.
A federal lawsuit seeking a receiver for the sewer system also took a step forward this week. The suit was filed last fall by the county’s bond insurers, Syncora Guarantee Inc. and Financial Guaranty Insurance Co., and bondholders’ trustee Bank of New York Mellon.
Federal Judge David Proctor on Wednesday took the names of six possible receivers from attorneys representing the county and the bond insurers. The insurers have paid a number of claims made by Jefferson County with regard to the sewer debt and, in court documents, have said they stand to pay significantly more.
Adding to the pressure on the county is the fact that Syncora on April 27 suspended all claims payments while it attempts to complete a comprehensive restructuring.
“At this point, I feel that the county is going to file for bankruptcy, although I am still not sure if the politicians involved really understand what that will do to the credit of the county and the state,” said Andreas Rauterkus, assistant professor of finance at the University of Alabama in Birmingham. “What other option is left other than bankruptcy?”
Collins, the commission president, suggested no other options as she talked to reporters yesterday following the commission’s regular meeting.
But she did say that the county would continue to do what it could to avoid bankruptcy. However, she offered no specifics as to what other sources of revenue might be available to accomplish the restructuring plan negotiated by the governor.
Riley had no comment regarding the situation yesterday.