No novelist would dare contrive a narrative so outlandish as Jefferson County, Alabama’s actual history over the last fifty or so years (Jefferson County is the county in which most of Birmingham, Alabama is situated). It would be too ridiculous for fiction. It was 1963 when a group of white rednecks in the County decided it would help their segregationist cause to blow up a black church during Sunday morning worship services when it was sure to be full, killing four little girls whose only crime was attending Sunday School that day. No fictionist could get his readers to believe that people could be that stupid had it not been actually demonstrated that they were. Equally as stupid, the bombing was preceded a few months by Birmingham having locked Martin Luther King, Jr. away in jail with the intention of thwarting his activism that was upsetting the status quo in and around the city and county. Of course, this only gave him a dramatically-staged platform for eloquently expressing the grievances of he and his agitators. His “Letter from a Birmingham Jail” became an instant classic. It’s hard to imagine a stupider group of humans purporting to lead a society than those that were in leadership positions in Birmingham and its surrounding County during the Civil Rights era.
Considering that stupid rarely falls far from the tree, it should come as little surprise that five decades later, the County in which Birmingham sits appears destined to make some more history, appropriately and ironically enough, precipitated by corruption and mismanagement in its handling of human excrements. The County is broke, mainly because of its sewer system (though there’s more to it, which I’ll explain). It appears bankruptcy, three years after the financial crisis revealed the sewer system insolvency, may now actually happen. If it comes, it will be the biggest municipal bankruptcy in US history. Governor Robert Bentley and Attorney General Luther Strange have intervened, putting everything on hold for a time (“thirty days” according to County officials) to see if a settlement might be finally worked out.
The county sewer department began borrowing money in the mid-nineties, ostensibly to meet the requirements of a consent decree between it and the EPA as ordered by a federal court judge. The county’s sewers were dumping too much untreated sewage in the county’s waterways, and so the EPA and other interested parties sued to have it stopped. The case was resolved with an order compelling the county to clean up its sewer operation. Years of county stupidity requiring federal government interventions meant that the county’s leadership had plenty of experience dealing with federal oversight, and no longer feared the lash of the federal whip so much. In fact, the county’s leadership took to the decree like pigs at a trough, gorging on a feast of sewer bonds and contracts, the commissioners enriching themselves handily in their role as gatekeepers to the apparently-bottomless feeding pit. Nineteen of the twenty county commissioners of the era eventually went to jail. The total sewer bond obligation eventually rose to $3.2 billion, in a county with only about 600,000 people (making it the biggest and richest county in the state, which apparently did not preclude it from also being the stupidest).
The sewer bonds, however, are not general-obligation bonds. Their repayment is tied to sewer system revenues. The bond-holders (mainly JP Morgan Chase) stand to take a huge haircut if sewer rates aren’t increased substantially, enough to pay back the bonds, with perhaps some modifications in term or interest rates (one wonders what value Chase assigns to the bonds on its balance sheet). The sewer system has been placed in receivership, and its trustee, John Young, recently filed to increase rates by 25% as a measure intended to help service the monstrous debt. Through receivership, the Sewer system is already operationally bankrupt in everything but name. Its insolvency no longer directly impacts the workings of the County government, but resolution of its insolvency will most certainly affect the County Commission’s constituents. Sewer system ratepayers are also voters.
While the sewer system is undeniably insolvent, the County itself wouldn’t be, except that one of its main sources of revenue, an occupational tax charged on income earned in the County, was struck down by the Alabama Supreme Court (again–it had been struck down before) and no replacement tax was instituted by the Jefferson County delegation to the Alabama legislature. Now the County can no longer pay its general-obligation bonds, which only total around $400 million, far less than its Sewer Bonds at $3.2 billion, and its school bonds (repaid with a county-wide 1% sales tax) of about $1 billion. The inability to repay its general-obligation bonds means the County itself is now insolvent. It has been forced to shutter satellite operations scattered throughout its footprint, and lay off or furlough several hundred workers.
When JP Morgan Chase was forced by the Securities and Exchange Commission to pay a $75 million fine to the County for irregularities in the manner with which it handled Sewer Bond swaps, the trustee for the sewer system promptly demanded the County hand over the money to him. The sages at the local fishwrap believed the County should resist the demand:
From the Birmingham News’, Our View:
The money from JPMorgan Chase is a direct result of actions involving the sewer system; more precisely, the financing of sewer bonds. The U.S. Securities and Exchange Commission, which reached the settlement with JPMorgan, said the money should be used to help those hurt by the bank’s actions. And, yes, those hurt most were sewer customers.
Plus, the purpose for which Young wants to use the money — establishing a fund to help low-income customers pay their sewer bills — is a worthy cause.
Yet, despite those facts on Young’s side, the Jefferson County Commission should vigorously fight turning over the $75 million to the receiver for this simple reason (though not the only one): The county can’t afford to lose the money.
So the County shouldn’t hand over the money, though it was specifically intended to benefit the Sewer system customers, just because the County needs the money? This is quite a curious ethic. Just because one happens to come into possession of another’s property, it is okay to deny it to them if you need it as much or more than they? The legal term for what the News proposes is “defalcation”, which is “to misuse funds; embezzle”. When a lawyer in private practice defalcates funds belonging to his clients, he is generally disbarred, and perhaps goes to jail. Of course, in a sense, the vast majority of County Commissioners during the run-up to the Sewer Bond crisis defalcated public funds that were entrusted to their care, so perhaps the News’ position reveals a bit about how the County got into this jam to start with.
Apparently County defalcation of other funds is also possible. Moody’s, those paragons of analytic virtue, noted that Jefferson County might delay payment or refuse to pay altogether money it collects on behalf of municipalities within its borders, making Jefferson County’s insolvency the immediate problem of the municipalities within it. County governments in Alabama are responsible for collecting municipal taxes for cities located within them, and are bound by statute to forward the taxes appropriately.
Also from the Birmingham News:
BIRMINGHAM, Alabama — School districts in Mountain Brook, Hoover and Homewood may have trouble making bond payments if financially strapped Jefferson County, as tax collector for those cities, holds onto cash to address its own fiscal problems, according to a report released Monday by Moody’s Investors Service.
“The county’s severe financial difficulties may tempt it to hold on to some of the cash, at least temporarily, thereby passing its own cash crunch on to the local municipalities,” Moody’s wrote in its report.
Converting to one’s own use the money of another is also called stealing, though it is rarely so poignantly expressed when done through the confidence of a relationship such as the County enjoys with its municipalities. Call it defalcation. Call it conversion. Call it stealing. It’s all the same thing. I wonder, will the News follow the logic of their ethic forward, and recommend that the County refuse to pay money it has collected in trust for its municipalities? After all, it can hardly afford to lose the money.
The County has been forced into stringent austerity measures, cutting funding to a number of programs. No one likes to have their funding cut, but only a select few have any leverage to prevent it. So it comes as no surprise that when the County cut funding for courtroom bailiffs, the courts threatened closure, claiming that holding court would be too unsafe, thereby implicitly threatening safety countywide. The County’s cuts didn’t affect the bailiffs that are positioned in the courtroom itself to provide firepower in the event of a fracas erupting, but eliminated funding for the security officers manning entrance security. It wasn’t until a few years after 9-11 that the courthouses in Jefferson County even had entrance security, and there are several rural counties that still don’t. There is precious little evidence lending credence to the idea that courtroom security is enhanced by forcing people through x-ray machines and metal detectors prior to entering, but once the government stepped in with its feckless measures in the hysteria after 9-11, these procedures became apparently permanent necessities. The money to keep entrance security was somehow discovered before the portentious closure. Cancer cells and government programs are the only extant evidence we have that eternal life is possible.
From the perspective of a county resident, it’s hard for me to see that very much is different now with the County’s insolvency than when it was not. I suppose lines for tags and licenses–those nifty little indicia of law-abiding citizenship–are now longer and slower moving, but it’s hard to tell. How does one make a distinction between really long and slow (as they already were) and a little longer and slower (as they might be now)? I know it would be impossibly hard for a government to imagine, but maybe we didn’t really much need what the County was doing anyway. What if the County gave a bankruptcy and nobody came?
The definitive purpose for any government entity is providing protection, but the County sheriff’s department barely has a footprint anymore, as most of the County is covered by one of its many municipal police forces. The Sheriff claims to have had to cut back patrol hours in order to prevent layoffs. I wonder whether any of the County’s residents have noticed. I doubt, however, the Sheriff’s Department has reduced its contractual obligation to pay ex-Governor Riley’s son, a lawyer whose critical distinguishing quality is his relationship the ex-Governor, some $700,000 per year for retainer.
Like I said, Jefferson County, Alabama couldn’t be fictional. No one would believe it.