Bonds Fell on Alabama – Jefferson County

Jefferson County Alabama amassed a $3.2 billion Bond Debt and have been in negotiations with creditors for over a decade. Their current considerations include either doubling their water bills or defaulting on their debt.

1990s

They had failed to maintain their sewer system to prevent overflows from spilling into the Cahaba river. In 1995, the county was enjoined by the EPA, under the Clean Water Act to upgrade its sewer system. They started the sewer upgrade project in 1996 and began selling Bonds to finance it. They needed to increase revenue to pay the debt service, so they increased water rates and imposed an occupational tax. That tax was declared unconstitutional in 2011.

2000s

During the period from 2002 and 2008 interest rates went up and down twice. The county converted the fixed rate bonds to variable and the second interest rate upswing caught them. Sales taxes were already 10%, property taxes were capped, a state bail-out bill was defeated. When the county couldn’t make its payments, J.P. Morgan and other Wall Street banks offered Bond swaps and ran into trouble with the SEC. The former County Commission Chairman is in jail for taking bribes. An Investment Banker and a Lobbyist are also in jail and fines were collected.

Birmingham is the county seat and continues to function. The Jefferson County 2011 budget shows a general fund of $312 million and total spending of $709 million. County population is 650,000 and it covers 1,124 square miles. It appears the county was unwilling to effectively fund and pare back other expenses to properly handle a core responsibility. Their obligations include a county hospital and a county nursing home and the normal boat-load of courts, jails and police, but most of the money goes to interest and lawyers.

Tragedy of Errors

Jefferson County extended their financial obligations beyond their ability to pay. When core utility infrastructure spending is needed, government must have a substantial reserve fund. Without this reserve fund, Jefferson County should have managed the sewer replacement to result in a lower cost. They could have initiated emergency repairs to prevent pollution of the Cahaba River to buy time to replace the entire system. They should not have swapped fixed rate bonds for variable rate bonds. They should have reduced other expenses and locked in to a low fixed rate 50 year bond to repay the sewer building cost. Even at the $3.2 billion cost, debt service would have been $60 million a year with a 50 year Bond.

Homeowners Mad as Hell

Jefferson county homeowners are ready to dig wells and septic tanks, but are not allowed to do that. They say they can’t sell their homes and move out, because water bills are going to $200 a month and higher. Like most voters, they see most of their tax dollars going to fund inefficient, overpriced office work and interest payments with little spent on the infrastructure they formed their governments to handle in the first place. Governments are increasingly abandoning their core infrastructure maintenance responsibilities to fund operations better handled by the private sector. They overuse Bonds, which cost double, so most of our tax dollars are wasted on debt interest..

Norb Leahy, Dunwoody GA Tea Party Leader