Bloomberg News

Bankrupt Alabama County Gets Senate Approval on Taxes

May 03, 2012

Bankrupt Jefferson County, Alabama would be allowed to raise taxes to ease its financial crisis under a measure approved by the state Senate.

The bill, passed today, also would need approval in the Alabama House in the remaining four legislative work days, and the signature of Republican Governor Robert Bentley.

Officials in Jefferson County, which filed the biggest municipal bankruptcy in U.S. history in November, are considering closing courts one day a week, stopping meal delivery for the elderly poor and imposing additional budget cuts in anticipation that the Legislature won’t act.

The Senate bill is similar to one introduced last week in the House, and would give the county the ability to raise taxes on wages and sales. The House may vote on the measure on May 10, said State Representative Jack Williams, a Republican sponsor of the measure from Vestavia Hills.

“You’re never happy to have a tax, but if it’s a tool to help the county, then we will use it with prudence,” Jefferson County Commissioner Joe Knight said in an interview after the vote.

County officials have said they would use the tax revenue to shore up some services and strengthen their hand in bankruptcy court.

Opposition Avoided

The Senate legislation was written in a way that sidestepped opposition from state lawmakers representing the county.

Local lawmakers in Alabama normally can block measures written to apply only to their county. The Senate got around that by allowing any county in the state facing Chapter 9 bankruptcy to raise taxes, instead of singling out Jefferson, the only county in that category.

County commissioners have said they need to replace revenue from a wage tax struck down by the Alabama Supreme Court last year to strengthen the county’s credibility in bankruptcy court and help resolve its financial shortfall. The stricken tax had generated about 25 percent of the county’s general fund.

Jefferson County’s financial trouble 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 wage tax was struck down. The county fired 700 employees, lost dozens more to attrition, reduced services and closed offices.

In September, creditors led by JPMorgan and Chase Co., proposed shaving more than $1 billion from the county’s $3.1 billion in sewer debt, in a deal that also required the Legislature to replace the lost wage tax revenues.

The county filed for Chapter 9 bankruptcy protection in November, after the Legislature and governor didn’t act.

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

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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