Even local governments that deal daily in finances, bonds, and legalities can be usurped by financial maneuverings. When we think of governments near collapse, California and its housing bubble comes to mind. Hearing that the most populated county in the State of Alabama is near financial ruin might be shocking news to Northerners. Isn’t God’s Country suppose to be all fiscally conservative?
Governing magazine writes: Bogged down in the high finances of a sewer system, Alabama’s biggest county is on the verge of bankruptcy.
Jefferson County’s saga began in 1993, when members of the Cahaba River Society complained that the county’s sewer system was discharging raw sewage into waterways. Federal officials issued a consent decree in which Jefferson County promised to upgrade the system.
To do so, the county issued $3 billion in bonds, an incredible amount for a sewer system with only 150,000 customers. As sewer rates rose to meet those costs and Jefferson County struggled under its debt, county officials looked for a way to lessen its loan payments. In 2002 and 2003, they refinanced their bonds with variable-rate and auction-rate securities. Auction-rate securities are bonds where the interest rate is reset by auctions conducted by brokerage firms every few weeks. “It’s a little like someone buying a house and getting a pretty good 30-year fixed-rate mortgage,” says Christopher “Kit” Taylor, former executive director of the Municipal Securities Rulemaking Board. “Then somebody says, ‘Why don’t you get an adjustable-rate mortgage?’”
Jefferson County is now pondering whether to declare bankruptcy now that the creditors are taking the matter to court. While Alabama is the poster child for the Deep South and the social and religious conservatism we hear so often from the political discourse, many will be surprised to know the Democratic Party has historically dominated Alabama politics. As such, fiscal policies have been rather liberal. Though in terms of this situation, bad oversight instead of policy may be to blame. People do need sewer systems.
Interestingly, counties in Alabama have weak home-rule since the Legislature must approve any final measures especially when it comes to taxing. This is quite unique since centralized governance tends to against typical “core conservative” values. Still, the disconnect between State and County levels here is not much different from Minnesota’s current plight with its Local Government Aid program.
