Bloomberg News

Alabama Governor Stands Clear as Jefferson County’s Cash Drains

May 18, 2012

Robert Bentley’s legacy as governor of Alabama may be his inability to force a solution to the bankruptcy of state’s most populous county.

The Alabama Legislature’s annual session ended on May 16 without House action on a bill to help close a budget shortfall facing Jefferson County, which six months ago filed a $4.2 billion municipal bankruptcy, the biggest in the U.S. Bentley, 69, stayed out of the public debate on the measure to allow the county to raise taxes.

The Legislature’s failure to act reflects poorly on the first-term Republican governor’s leadership, said William Stewart, professor emeritus of political science at the University of Alabama in Tuscaloosa. The state’s reputation with businesses and the bond market is suffering because the governor and lawmakers aren’t helping the county, he said.

“It taints his legacy,” Stewart said in a phone interview. “Jefferson is the most important county economically in the state. He didn’t come in and knock heads together and say, ‘you have to come up with a solution because it’s hurting the state as a whole.’”

The county of 660,000, home to Birmingham, already has missed a $15 million general-obligation bond payment and will miss another payment in October, said county bankruptcy attorney Kenneth Klee in a public meeting yesterday in Birmingham. County officials have dismissed 800 employees and reduced services. They say they need a state law to allow them to raise taxes to close a $40 million shortfall.

Economic Health

The area’s economic health is critical to the state. Birmingham-based firms compose at least 90 percent of the Bloomberg Economic Evaluation of States’ Alabama stock index, based on market capitalization.

The legislative delegation from Jefferson hasn’t been able to agree on a solution, as lawmakers are divided between those opposing taxes and who oppose additional cuts to services that would affect low-income residents.

In Jefferson County, commissioners said they weren’t happy with Bentley’s performance.

“He left us to fend for ourselves,” said county Commissioner Sandra Little Brown, a Democrat, in an interview. “I’m totally disappointed. I expected more strength from the governor.”

National Public Finance Guarantee Corp., which insures about $96 million of Jefferson County’s general-obligation bonds, will make sure bondholders receive their principal and interest payments on time, said Kevin Brown, a company spokesman, in an e-mail statement. National was previously known as MBIA Insurance Corp.

Penalty for Bankruptcy

“National is disappointed by the failure of Jefferson County’s state legislative delegation to reach a consensus on a solution to the county’s budget shortfall,” Brown said. The company “remains concerned that the gridlock in the Legislature will have negative repercussions for other municipalities throughout Alabama as well as for the state itself.”

Cities and towns in Alabama are paying a penalty for Jefferson’s bankruptcy. Investors are demanding extra yield to buy the region’s debt. Tom Barnett, finance director of Birmingham, said the premium may be 0.25 percentage point across the state.

The majority-Republican Legislature’s next regular session begins in February. Bentley said yesterday that he wouldn’t call a special session before then to deal with Jefferson unless the county’s 18 lawmakers reach consensus. A special session began yesterday to deal with immigration and other unrelated matters.

Working With Lawmakers

“We’re going to continue to work with the delegation,” Bentley told reporters. “They’re going to have to come together.”

He added: “We’re not going to waste taxpayer dollars on a special session until they do.”

In an effort to resolve the county’s shortfall, Bentley met over the past four months with lawmakers of both political parties, business leaders and the head of the county-owned hospital for the poor, said David Perry, the governor’s chief of staff.

County Republicans in the Legislature want to take money now dedicated to medical care for low-income residents and use it to close the budget shortfall. Bentley said yesterday that approach -- opposed by Democrats in the county’s Legislative delegation -- should be considered.

“The governor did what he could behind the scenes,” Perry said in an interview. “I’m not sure that anybody could have bridged the gap between the members of the Jefferson County delegation. Certainly, nobody did.”

Governor’s Involvement

State Senator Scott Beason of Jefferson County, a Republican, said in an interview that Bentley tried as best he could.

“I don’t know what else he could have done,” said Beason, who supports using the medical care money to close the budget gap.

Other lawmakers from Jefferson faulted the governor.

“He wasn’t involved,” said Representative Patricia Todd, a Democrat. “He was more like ‘Y’all go figure it out.’”

State Senator J.T. “Jabo” Waggoner, a Republican who sponsored the failed bill, said Bentley “should have made an effort” to back the tax measure.

“Any governor should be able to influence the members of his own party,” Waggoner said in an interview.

Bentley is a retired dermatologist who served two terms in the Alabama House before winning the governor’s race in 2010, on a campaign that included a pledge not to raise taxes. He took office in January 2011.

Bond Deals

Jefferson County’s 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 a wage tax that had generated 25 percent of its general fund was struck down by the state Supreme Court.

Bentley’s administration tried to help Jefferson avoid bankruptcy by negotiating with sewer creditors and offering a state-debt guarantee. The bargain required the Legislature replace the missing wage tax revenue.

The county’s legislative delegation, divided along both race and party lines, couldn’t agree on how to do that. Alabama law allows a single member of a county’s legislative delegation to stop measures that name their locality.

The Legislature convened its regular session in February, and county legislators still couldn’t agree. So two Republican lawmakers from Jefferson introduced bills written in a way that sidestepped opposition from state lawmakers representing the county. That measure was the only Jefferson County proposal still alive in the Legislature on its last day.

Bentley said yesterday that he would have supported the bill if it included language requiring counties to get permission from the governor’s office to file bankruptcy.

The measure passed in the Senate, and a similar version failed in the House, 18-12. Sixty-nine House members didn’t vote.

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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