Alabama Senate passes tax for bankrupt county

Reuters News
Posted: May 03, 2012 7:58 PM
Alabama Senate passes tax for bankrupt county

By Verna Gates

(Reuters) - The Alabama State Senate on Thursday approved a bill allowing cash-strapped Jefferson County to revive a local jobs tax that county officials say is central to working out its $4.27 billion bankruptcy case.

The bill, which must also be approved by the legislature's lower house and the governor, would allow any county in Alabama seeking relief from creditors under Chapter 9 of the U.S. Bankruptcy Code to levy and collect taxes.

The bill is worth about $60 million a year to Jefferson County and passed in Montgomery with a vote of 16 to 11, with one senator abstaining.

In Alabama, the state constitution grants all taxing authority to the state legislature. Local state legislators that have effective veto power over Jefferson County legislation have been divided over how and whether to allow a revenue fix.

An amendment reauthorizing the occupational tax added a clause limiting the life of the levy to three years, giving the county time to complete its bankruptcy.

"I am encouraged," Jefferson County Commissioner Jimmie Stephens said.

The Distressed County Bill also allows local officials unencumbered use of the collected taxes, unlike other occupational-tax bills that reserved some tax revenues for fixed purposes or tied tax rates to sewer rates.

A new occupational tax would replace one struck down by the Alabama Supreme Court last year. The occupational tax provided $66 million in revenue; its loss crippled the county's general fund, causing it to default on payments for a general obligation bond on April 2.

"Now, we just have the House to worry about," said Tony Petelos, county manager for Jefferson County.

Hobbled by massive sewer-system debt of about $3 billion, Jefferson County in November filed for its bankruptcy after the unwinding of a tentative agreement that might have cut the county's debt load by $1 billion. County finances had been also been damaged by political corruption and the loss of the occupational tax.

County officials have repeatedly said replacing the tax was crucial for preparing a plan for repaying JPMorgan Chase and other creditors that must be approved by a federal judge.

(Additional reporting by Michael Connor in Miami; Editing by Doina Chiacu)