Jefferson County’s exit from the second-largest municipal bankruptcy in United States history means county officials can concentrate more on economic development and rebuild a weakened government that has lost more than 1,700 employees since 2008 and experienced a severe reduction in services that has resulted, most notably, in abominably long lines for car tag renewals.
“There’s been a dark cloud hanging over JeffersonCounty,” said County Manager Tony Petelos. “But that cloud has been lifted.”
More than two years ago, after staring at unmanageable debt, having its occupational tax declared illegal — drying up a major source of county revenue — and having a court-appointed receiver threaten to hike sewer rates by exorbitant amounts, the five-member County Commission voted on Nov. 10, 2011, to file for bankruptcy, hoping to renegotiate the amount the county owed its creditors. At the time it was the largest municipal bankruptcy in American history, although Detroit now holds the title.
Commissioners — all except one — said bankruptcy was the only way to stop the county’s downward financial spiral brought about by previous county officials taking advantage of a 1996 consent decree to fix violations of the Clean Water Act by funding unnecessary sewer projects and lining their pockets in the process. Former Commissioners Larry Langford, Gary White, Mary Buckelew and Chris McNair were all convicted of offenses related to the years-long sewer debacle.
Also, the decision by a previous commission to swap bonds to lower interest rates didn’t pan out, but instead plunged the county into near financial ruin.
But millions of dollars in legal fees later, after attorneys representing the county convinced creditors collectively to accept a few billion dollars less, U.S. Bankruptcy Judge Thomas Bennett on Dec. 3 approved a $4.2 billion bankruptcy exit plan that includes $1.8 billion of new debt to be borne by sewer customers through progressive rate increases over 40 years.
As troubling as the decision is to county sewer users (three residents sued to stop the court imposing higher sewer rates but have since dropped their suit), it ironically may benefit county residents in the long run, officials say.
Petelos noted that environmental regulations will necessitate the rise in sewer bills. “And it’s not just Jefferson County, but every sewage treatment plant in the United States will continue to see sewer rates go up because of stiffer requirements with the Clean Water Act,” he said. And if the bankruptcy exit plan were not approved, there was no guarantee the court wouldn’t reappoint a sewer receiver who likely would impose even greater rate hikes, Petelos added.
But from the county’s perspective, having the bankruptcy in its rear view mirror means it can concentrate on generating revenue through economic development.
“We’ve known all along we have to focus our energy on economic development and job creation,” Council President David Carrington said. “That’s going to be the best way for the county to keep sewer rates low going forward.”
The bankruptcy didn’t totally damage the county’s ability to court new businesses, as Jefferson County remains attractive to potential developers, experts say. “Despite Jefferson County’s bankruptcy, the county and the Birmingham region continue to retain businesses and recruit new jobs for the area,” said Brian Hilson, president and CEO of the Birmingham Business Alliance. “The growth our region experienced in the midst of bankruptcy was significant. Birmingham was the only major metro in the state that had GDP growth in 2013.”
County officials agree that economic development didn’t come to a screeching halt the past two years. But it didn’t have their full attention either.
“Obviously, we didn’t have the time to invest in it,” Carrington said. “We didn’t have the cash to invest into it because when you’re in bankruptcy, you hoard cash because you don’t know what tomorrow is going to bring. Now we’re able to invest more because we have more certainty of our financial future.”
It didn’t help that much of the county’s cash went to bankruptcy attorneys, to the tune of $1 million a month. “It was estimated we would be in bankruptcy for three to five years, so the fact we exited bankruptcy faster than some thought we could at 25 months is good,” Petelos said.
Still, with limited revenue, commissioners hope to restore services that have taken a back seat during the county’s financial crisis.
First on the county’s agenda is to tackle the tag renewal situation. Residents renewing their vehicle tags must endure long lines for hours at a time at each of the county’s offices in Birmingham, Bessemer and Center Point. The county closed its Homewood satellite office due to budget cuts. County officials plan to install a new software program and purchase new hardware equipment to help expedite tag renewals – money it included in its 2014 fiscal budget, Petelos said. “The current system was written for a mainframe 20 years ago,” he said. “We’ll implement the new software and then determine what level of staffing is necessary with the new system.”
Public safety — i.e., the Jefferson County Sheriff’s Department — and roads and transportation have also taken considerable hits to their budgets through the loss of the job tax. The sheriff’s budget has been whittled from $63 million to $43 million and roads and transportation from $40 million to $20 million. County officials say they want to concentrate on restoring the level of service in those areas, too.
“We’re paving about 120 miles of road a year,” Petelos said. “We need to be repaving 300 to 400 miles a year in order to keep up with the maintenance on those roads.” Petelos noted that if the county gets too far behind in its repaving schedule, neglected roads will get even worse, costing still more money to replace them.
The county did take steps to bolster public safety recently by reopening the county jail in Bessemer. Commissioners closed the jail in 2009 as part of sweeping budget cuts. But the county was able to reduce lease payments on the jail as part of its bankruptcy exit plan and reopen the facility, Carrington said.
Eventually, the county anticipates hiring additional employees, but not nearly as many as the 1,750 lost through a combination of attrition and layoffs. “We need to bring back between 150 and 200 to deliver the level of service I think our residents want,” Carrington said.
That means the county will likely look at additional revenue through taxes, earmarking existing funds for that purpose or refinancing existing debt within the next two years, the commission president said.
Right now, Carrington doesn’t see reinstating the occupational tax as a viable option. “It’s an election year. You’re not going to get anything done,” he said.
Petelos said the county could use 2014 to lay the foundation for occupational tax legislation in 2015. “We’ll have a busy year next year,” the county’s manager said in December. “But by 2015 I’ll be able to go to the legislature and say, we’ve made these cuts, we’ve reduced this level of spending, we’ve streamlined our operations” and get lawmakers to consider sponsoring a bill.
But for now, commissioners are focused on stimulating economic development and job creation and making sure the county is adequately serving its residents.
“The public is going to see improvements, but they’re not going to see improvements [at] the level that they expect,” Carrington said. “County government will never be as large as it was four years ago, but that doesn’t mean it can’t be as efficient.”