Bankrupt Jefferson County’s New Manager Says He Has No Regrets

“No, I know what I’m doing,” Tony Petelos assured fellow congregants at church this weekend when asked whether he regretted becoming the first manager of Jefferson County, Alabama, which filed for bankruptcy last week.

It’s a familiar response to a familiar question -- along with inquiries about his sanity, Petelos said yesterday in an interview in his Birmingham office. He whipped out his phone to show a photo of himself in Nepal, taken in April after a 12-day trek around the base of Mount Everest. Petelos, a 58-year-old who began his job Oct. 1, said both challenges demand persistence and stamina.

“There’s a light at the end of the tunnel -- the light is we’re going to pull out of bankruptcy,” said Petelos, adding that the County Commission did the right thing. “How long is that tunnel? Two years, three years, five years? I don’t know. But we’re going to pull out of this.”

Petelos, a former Republican legislator, state human resources commissioner and Hoover mayor whose salary more than doubled when he took the job, must execute $40 million in cuts in a county where services have already been pared to the bone. A new jail unit didn’t open, and those remaining have toilet paper, linens and clothes in short supply. The county has fired about 450 workers and forced others to take days off without pay. Residents wait hours in lines for license plates. Workers set up portable toilets to accommodate them.

Gushing Filth

Jefferson County’s filing ended what Petelos calls “an era of corruption and dysfunctionality” that sent politicians to prison and saddled residents of the state’s most populous county with more than $3 billion in sewer-system debt and ballooning bills to cover the tab. The filing was the biggest municipal bankruptcy in U.S. history.

The slide to bankruptcy began in 1996, when the county was forced to rebuild its sewer system after pollution was found spewing into rivers. Risky derivative financing for the project backfired beginning in early 2008, leading the county to become one of the biggest casualties of Wall Street’s credit crisis.

Before the crisis, county commissioners -- five of whom were convicted of corruption charges -- each presided over different administrative fiefdoms. Alabama’s Legislature created the manager position to prevent further wrongdoing.

Last Man Standing

Commissioners chose Petelos after a nationwide search, and after out-of-state candidates backed out.

They cited Petelos’ knowledge of the Legislature that he acquired during his tenure as representative from 1986 to 1997. That may help him as the county continues to seek a legislative solution for a revenue shortfall that aggravated its financial crisis.

“He wants the county to succeed and to create a legacy,” said Commissioner Jimmie Stephens, chairman of the finance committee. “Tony Petelos is the right man at the right time.”

Petelos has few resources to help him in the county that encompasses 33 municipalities and a population of 658,460.

Its bonds are rated by Moody’s Investors Service at Caa1, below investment grade. Revenue in the fiscal year that ended in September totaled $152.5 million, down from $207.2 million the previous year. The county has cut about 450 positions since June to bring the workforce to 2,687 employees. More cuts are coming next month, Commission President David Carrington has said.

Dismissals Ahead

Petelos said he’ll try to persuade the Republican-dominated Legislature to give the County Commission authority to raise money for the general-fund budget, which faces a $40 million shortfall. He declined to say where else he might reduce services.

“We have almost no money for capital expenditures in this budget -- and for a county of this size, we need to be setting aside millions of dollars every year to replace vehicles, air conditioning units, and other capital items,” he said. “Ultimately we’ll have to lay off employees at some time, though I’m not sure how many or when or where.”

The son of immigrants and the youngest of eight children, Petelos spoke Greek before English. He grew up in Ensley, an industrial neighborhood in Birmingham. For 30 years before entering government he owned a small construction business, mostly building restaurants around the city. His wife, Teresa, is a state circuit judge who sits in Jefferson County’s Bessemer Courthouse.

Leaving Hoover

Petelos said his decision to become county manager was difficult -- he had to step down after seven years as mayor of Hoover, a suburb about 20 minutes south of Birmingham that is the state’s sixth-largest city. He ticked off a list of the city’s honors that included recognition as one of the best small cities in the U.S. by Money Magazine in 2006.

Sound finances may be the biggest difference between the county and Hoover, a sprawling suburb of houses on cul-de-sacs with some of the state’s best schools. Its high-school football team, a source of civic pride, was featured in the MTV television reality series “Two-a-Days.”

“For seven years, we never borrowed money,” Petelos said. The city spent $80 million on capital projects during his tenure, and didn’t resort to layoffs despite the recession, he said. When he left, the city had $30 million in reserves.

Fatter Envelope

Petelos’ paycheck reflects what he calls a tougher job: his annual salary is $224,000 as Jefferson County manager, compared with the $96,000 he took in as mayor. This week he’ll meet with county department heads and other staff members.

His actions haven’t been without criticism. He drew the ire of John Archibald, a Birmingham News columnist, for planning to hire commission staffers as deputy manager and chief finance officer for annual salaries of $150,000 and $164,000, respectively. Those hired were assistants to Stephens and Commissioner Sandra Little Brown, he wrote.

“It reeks of political payoff,” Archibald said in his column.

Petelos said the positions were mandated, just as his was, by the Legislature. He said the county’s personnel department determined their salaries after an analysis of their duties.

“Remember, we’re taking responsibility away from the commissioners and putting it on the county manager’s office,” he said. “It’s impossible for me to do this alone.”

To contact the reporter on this story: Esme E. Deprez in Birmingham at edeprez@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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