BRADENTON, Fla. - Conditions in Jefferson County, Ala. are improving after its bankruptcy, the county's top official said.
The county is preparing for its first municipal bond market appearance since its 2013 exit from bankruptcy.
"We're doing our due diligence and making sure that we don't revisit some of the mistakes of the past," said County Commission President Jimmie Stephens.
The local economy has shown signs of rebounding the past few years as assessed values, sales and property tax collections have edged higher, according to the county's
Plans are under way for Birmingham, the county seat, to host the World Games athletic competition in 2021.
Jefferson County officials also mended a long-running contentious relationship with the Alabama Legislature earlier this year, which prevented the state's most populous county from receiving financial assistance from the capital in the past.
"We went to the Legislature with a genuine set of needs, not wants," Stephens said in a recent interview. "In order to do our job and be effective in our job, we needed additional revenue to reinvest in the future of Jefferson County."
County officials showed lawmakers the detailed steps that have has taken in recent years to downsize government, including filing for Chapter 9 bankruptcy in November 2011.
The county's budget has remained structurally balanced but there haven't been enough funds to resume some services such as a complete local road-paving program, Stephens said.
After explaining the county's basic needs, lawmakers passed a bill that Gov. Robert Bentley signed last month that will provide capital funds for deferred repairs and new projects.
The bill will allow the county to refund about $595 million of limited-obligation school warrants secured by a dedicated sales tax. Those warrants are structured so that any tax revenues in excess of debt service requirements are used for early redemptions.
After the refunding, debt service on the warrants will be paid with sales tax proceeds, but excess collections will go toward various capital expenses.
"We're going to use that to rebuild our infrastructure and do some of the deferred maintenance on our roads," Stephens said.
Some sales tax funds will go toward local mass transit improvements that are expected to be completed in time for the World Games, he said.
The games are a multi-sport competition for sports that aren't included in the Olympics, such as lacrosse, bowling, and tug-of-war. Almost 4,000 athletes from more than 100 countries competed in the 2013 games in Cali, Columbia.
Stephens and other county officials unveiled the refunding plan to rating agency analysts in May when they traveled to New York to provide updates on the county's finances since exiting Chapter 9 bankruptcy in December 2013.
The county plans to bring the refunding to market in November or December, according to Stephens.
The deal is expected to result in about $60 million of savings. Of that amount, $36 million will be transferred to the county's general fund and the rest will be used for expenses specified in the bill.
"This is one of the items that the Jefferson County Commission is hanging its future on, and we want to make sure everything is done properly," Stephens said.
The county is also continuing to defend its reorganization plan, which has been under appeal since late 2013.
Some 20 volumes of documents were recently filed with the 11th Circuit Court of Appeals in Atlanta, setting the stage for county attorneys to argue that the bankruptcy exit plan is on firm ground, and that certain aspects protecting bondholders should be upheld.
"I feel very good about it," Stephens said about the appeal.
A key issue before the appellate court is whether a lower-court appeal of Jefferson County's bankruptcy plan by a group of county sewer system ratepayers is moot.
County attorneys are arguing that the appeal is not viable because the court-approved bankruptcy plan was largely implemented following the sale of $1.8 billion in 40-year sewer refunding warrants in December 2013.
The refunding warrants allowed the county to write down $1.4 billion in related sewer debt in an intricate transaction that cannot be unwound, the county's attorneys have said.
However, the federal judge presiding over the ratepayers' appeal has ruled that the bankruptcy plan is not moot because some key components are questionable, including a provision that requires the bankruptcy court to ensure that county officials adopt sewer rates sufficient to pay debt service on the refunding warrants.
That provision formed an essential basis for the county's 2013 warrant refunding deal.
County attorneys and market participants have said it is critical for the appellate court to resolve the mootness issue for investors and the stability of any municipality relying on exit financing to emerge from bankruptcy.
Matt Fabian, a partner at Municipal Market Analytics, downplayed the importance of the case to the market in a June 22 Weekly Outlook report.
"Jefferson County's current court drama poses little if any risk to the market at large, in MMA's opinion," Fabian wrote.
While the county and market participants have argued that the municipal market would be disrupted if the ratepayers' lawsuit ultimately disengaged the federal court from enforcing the county sewer system's rate covenant, Fabian said MMA does not see this as a credible scenario.
"While federal enforcement was likely a crucial factor in persuading some rating agencies and selected investors that the county's Chapter 9 exit financing was an investment grade security, this was a novel and speculative construction in which most traditional market participants have placed little faith," he said.
Fabian said that he doubts that Jefferson County's ratings would change if the ratepayers' appeal is successful because of the amount of time that has passed since the sewer warrant indenture and rate covenant went into effect.
If the court sides with Jefferson County, Fabian said that the sewer warrants could trade up because such a ruling would "effectively negate willingness as a material risk" for bondholders.
The five-member County Commission, all reelected for a second term in November, continues to make tough decisions regardless of the political consequences, Stephens said.
Since voting for reorganization, four sewer rate increases have been implemented and appear to be sustaining the sewer system's debt, maintenance, and capital expenses, he said.
"This commission is dedicated and determined to follow the judge's order and to follow the bankruptcy plan," Stephens said. "There are still plenty of challenges, but we're working together and that gives us opportunities for success."
