Jefferson County Readies for Austerity With No State Help

Officials in bankrupt Jefferson County are considering closing courts one day a week, stopping meal delivery for the elderly poor and eliminating building inspections in anticipation of the Alabama Legislature ending its 2012 session without letting it raise taxes.

Even cut to the bone, it may be impossible for Alabama’s most populous county, with 660,000 residents, to emerge from the biggest municipal bankruptcy in U.S. history without more revenue, Commissioner Jimmie Stephens said in a phone interview.

With no power to raise taxes, “cutting is the only tool the Alabama Constitution gives us,” he said. “Everything will be on the table, anything not mandated by the Constitution.”

The Legislature has seven working days left. So far, the county’s 18-member local delegation has been unable to agree on a tax increase or any other solution to Jefferson’s $40 million annual budget shortfall -- and a single member can kill a bill. A measure that would let the full body force a tax lacks public backing from Republican Governor Robert Bentley, nor has the governor put forth a plan of his own.

“The governor’s office has been in close and regular contact with members of the Jefferson County delegation, and the delegation must find common ground that provides the county with the ability to successfully emerge from bankruptcy and put its problems in the past,” Jeremy King, a spokesman, said in an e- mail. “Governor Bentley stands ready to continue working with the delegation to find and implement a solution.”

No Held Breath

Democratic Representative John Rogers of Birmingham said it’s already too late.

“We have seven days left and it takes at least five to pass a local bill,” Rogers said in a phone interview. “I don’t see it happening.”

Jefferson County’s financial demise began more than three years ago, a product of corruption and bad bond deals involving its sewer system. It became a crisis last year, after the state Supreme Court struck down a 25-year-old wage tax that had generated about $70 million per year -- about a quarter of the county’s revenue.

The county cut 700 employees, reduced services and closed satellite offices. It remains around $40 million short, Stephens said.

Jefferson County filed for bankruptcy protection in November after lawmakers failed to deliver their part of a September bargain struck with holders of the county’s sewer debt, led by JPMorgan Chase & Co. (JPM) The agreement required the Legislature to create an authority to oversee the sewer system and to fix the county’s revenue situation.

Unhappy Banks

The bankruptcy was opposed by Bank of New York Mellon Corp., trustee for more than $3 billion in sewer debt, and JPMorgan, which owns more than $1 billion in sewer warrants, Bank of America Corp. and Assured Guaranty Municipal Corp. (AGO)

State law allows legislators to control locally targeted legislation, unless four-fifths of the state House of Representatives or Senate overrides their wishes.

Jefferson County’s delegation hasn’t been able to agree on any solution. Proposals have included replacing the wage tax, replacing it temporarily, and removing legislative mandates that the county use about $40 million in revenue from sales taxes for indigent medical care and other special purposes.

Rogers is among Democrats who oppose a new tax, unless the county agrees to rehire workers it cut over the past year, which Stephens and County Manager Tony Petelos have said they’re unwilling to do.

“That’s the opposite of what we’re trying to do,” said Stephens. “We’re trying to become more efficient and effective.”

Harming the Innocent

Rogers also opposes taking money from indigent care and any new sales tax because it would disproportionately hurt poor people: “These are people who haven’t stolen one dime, haven’t committed any fraud like Wall Street, and you’re going to take away their medical care and tax them to death?”

Republicans oppose reinstating the tax for more than three years, which Stephens said will not be enough to satisfy a bankruptcy judge.

Representative Jack Williams, a Vestavia Hills Republican, introduced a bill last week that would allow any Alabama county in bankruptcy to raise taxes. Because it does not name Jefferson County, it can pass without local lawmakers’ consent.

The bill is probably dead, in part because Bentley won’t back it publicly, Williams said in a phone interview yesterday.

“I don’t think the House or the Senate has the patience for an all-day debate on the floor about Jefferson County,” he said. “Should the governor get engaged, that could change.”

To contact the reporter on this story: Margaret Newkirk in Atlanta at mnewkirk@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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