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Jefferson County Democratic Lawmakers May Derail Debt Deal

Alabama Governor Robert Bentley wants more unity among the Jefferson County delegation before calling a legislative session to deliver the state’s part of the settlement, according to lawmakers. Source: Alabama Governor's Office
Alabama Governor Robert Bentley wants more unity among the Jefferson County delegation before calling a legislative session to deliver the state’s part of the settlement, according to lawmakers. Source: Alabama Governor's Office

Oct. 13 (Bloomberg) -- The Democratic half of the Alabama Legislature’s 25-member Jefferson County delegation opposes a settlement with holders of $3.14 billion in debt, throwing the deal in doubt, according to three lawmakers.

Legislators met today with county commissioners to discuss the plan to avert a record municipal bankruptcy. Democratic state Representatives Patricia Todd, John Rogers and Mary Moore said in phone interviews this week that most of the delegation dislikes the terms of the deal. Their party in particular will oppose bills necessary for its success because they believe it gouges the poor, who would have to pay higher fees. In Alabama, one lawmaker can block legislation pertaining to a county, thanks to a tradition of “local courtesy.”

Todd said the delegation is unlikely to deliver the unity that Alabama Governor Robert Bentley, a Republican, wants before calling a legislative session next month to deliver the state’s part of the settlement county commissioners approved in September.

“They’re pressing us pretty hard to accept the deal and get the legislative deals through,” Todd said of the commission and governor’s staff. Opposition is so strong, she said, that “I can’t imagine that we’ll have a special session. It would be a waste of money. I told them, ‘I think you all are dreaming.’”

Three-Year Struggle

Municipalities across the nation have been battered by the financial crisis. Central Falls, Rhode Island, sought Chapter 9 bankruptcy protection on Aug. 1 because of problems meeting pension obligations. Harrisburg, Pennsylvania, became the year’s ninth filing by a municipal-bond issuer on Oct. 11. It was the biggest since Vallejo, California, in 2008, according to Municipal Market Advisors, a Concord, Massachusetts, research firm.

Bankruptcy has loomed over Jefferson County, home to Birmingham and more than 658,000 residents, for more than three years, thanks to the botched refinancing of a sewer renovation.

Without a settlement, Jefferson County might file the biggest municipal bankruptcy in U.S. history as early as December. Commissioners avoided a filing Sept. 16 by voting 4-1 for a deal with creditors, who agreed to concessions worth $1.1 billion. JPMorgan Chase & Co., which arranged most of the debt, would take the biggest loss.

Deadline for Deal

Jefferson County and its creditors set the end of this week as a deadline for an agreement. Officials had said they hoped to have a final draft by Oct. 15. At today’s meeting, however, lawmakers said they wouldn’t support the proposal’s sewer-rate increases. Not one spoke in favor of the deal.

Kenneth Klee, the county’s bankruptcy lawyer, told the lawmakers that a Jefferson County filing “would be like Chernobyl” for bond ratings in Alabama.

David Perry, Bentley’s chief of staff, said the governor wouldn’t call a special session unless the Jefferson County delegation united behind the needed legislation. He said he wasn’t giving up.

“There’s a long history of things looking hopeless in one instant and later being resolved,” Perry said.

Bentley said today that agreement isn’t close, the Birmingham News reported on its website.

“I think a November special session is probably unlikely,” the governor told the newspaper.

David Carrington, president of the County Commission, said today’s meeting might have encouraged political posturing. He said he planned to talk to lawmakers individually.

“I find that you often don’t accomplish much in meetings like these,” Carrington said.

Paying Up

The settlement calls for three annual sewer-rate increases of as much as 8.2 percent, followed by annual boosts of no more than 3.25 percent. It requires the Legislature to approve “moral obligation” backing for new sewer debt and to create an independent authority -- a so-called government utility service commission -- to operate the system. It also requires a fix for a hole in the county operating revenue caused when a judge struck down a tax on wages.

Democratic lawmakers oppose the rate increases, a provision relieving JPMorgan of legal liability and the sewer authority, which Rogers said “is going to make somebody very, very wealthy on the backs of poor people.”

Legislators are also split along party lines on the revenue question, with Democrats favoring a new tax and Republicans wanting to use existing funds now earmarked for indigent medical care.

First Things First

The revenue shortfall stems from a March state Supreme Court ruling that struck down a tax on wages that generated about $70 million a year. In June, the Legislature failed to pass a bill that would have let the county raise taxes. The county dismissed 547 employees that month. Its 2012 operating budget still is $40 million short of meeting expenses.

Merely failing to replace that money could force Jefferson County into bankruptcy, Commissioner Jimmie Stephens said this week.

The chairman of the county legislative delegation, Republican Senator Paul DeMarco of Homewood, urged fellow lawmakers to concentrate first on replacing the lost revenue, and to worry about other terms of the settlement later.

Three-Year Crisis

Jefferson County’s crisis erupted in 2008 when investors dumped floating-rate bonds used to refinance fixed-rate sewer debt after companies that insured them lost top credit ratings because of investments in subprime mortgages.

The county’s floating-rate securities were coupled with interest-rate swaps, a money-saving strategy pitched by banks, which backfired. As credit markets convulsed, interest costs soared. When banks demanded early bond payoffs, the county defaulted.

In interviews in Birmingham this week, commissioners said they had not given up on persuading the delegation to deliver legislation to save the settlement. They remain “cautiously optimistic,” Commissioner Joe Knight said in a phone interview Oct. 11.

He said he believed the lawmakers were misreading the public mood. “I’m not getting any backlash for settling,” Knight said. “The people want resolution.”

To contact the reporters on this story: Margaret Newkirk in Atlanta at; Kathleen Edwards in New York at

To contact the editor responsible for this story: Mark Tannenbaum at

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