Bloomberg News

Tax for Bankrupt Alabama County Fails in State House

May 17, 2012

The Alabama House refused to consider allowing bankrupt Jefferson County, Alabama, to raise taxes, which may lead to further cuts in services and more missed bond payments.

Lawmakers voted to remove the measure from their agenda yesterday, the last day of their annual legislative session. Unless Republican Governor Robert Bentley calls a special session, the Legislature won’t be able to consider approving a tax until it reconvenes in February.

County officials, struggling with a budget shortfall, sought permission to reinstate a wage tax struck down by the state Supreme Court last year. The tax had generated about 25 percent of the county’s general fund, and can’t be replaced without legislative approval.

The county, which in November filed the biggest U.S. municipal bankruptcy, will further reduce services and may miss a $10 million general-obligation bond payment due in October, said County Manager Tony Petelos in a May 15 interview. Officials have said they’re considering closing courts one day a week, stopping meal delivery for poor senior citizens and eliminating building inspections.

At a news conference today in Montgomery, Bentley said he won’t call a special session of the Legislature to address Jefferson County unless the county’s legislative delegation can agree on a solution. So far, the delegation hasn’t reached a consensus on whether to increase taxes. The governor called a special session starting today on other matters.

State Costs

State Representative Patricia Todd, a Democrat from Birmingham, criticized her colleagues for failing to act.

“What they don’t understand is the seriousness of our defaults on general-obligation bonds,” Todd said in an interview. “That’s going to cost the whole state.”

Jeremy King, a spokesman for Bentley, declined to comment on whether the governor would call a special session on the issue.

Jefferson County has fired 800 workers, closed government offices, cut medical care for the poor and missed a $15 million general-obligation bond payment.

The House bill would have allowed the county to levy a wage tax for those who live and work in the county. The measure exempted those who live elsewhere, while a Senate version approved on May 3 included everyone who works in the county. County officials backed the Senate version, which they say may generate $60 million annually.

Bond Deals

The 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.

Both the House and Senate measures were written in a way that sidestepped opposition from state lawmakers representing the county.

Lawmakers in Alabama usually can block measures written to apply only to their county. The Legislature worked around that by allowing any county in the state that has filed for Chapter 9 bankruptcy to raise taxes, instead of singling out Jefferson, the only county in that category.

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

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


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