Jefferson County is on the verge of a financial meltdown. The cause, however, is not the escalating sewer bond debt. It is the loss of the occupational tax. My last blog on Jefferson County’s occupational tax discussed Judge Rains’ January 12, 2009 opinion invalidating the occupational tax. While his opinion allowed the continued collection of the tax, it required the proceeds to be placed in an escrow account. Jefferson County appealed Judge Rains’ decision to the Alabama Supreme Court as well as petitioned Judge Rains for use of some of the occupational tax funds. In March, Judge Rains ruled that the county could spend occupational taxes collected through May 18, 2009. Not coincidentally, that date was the day after the end of the regular legislative session. Accordingly, the Alabama legislature had to pass a new occupational tax for Jefferson County by the end of the legislative session or the county would be without 26 percent of its general fund resources. The county projected during the session that the loss of the tax would cause the county to run out of money sometime in August.
Legislature Fails to Pass Tax
As you heard from the massive media attention it received, a new occupational tax was not passed during the legislative session. Senator Linda Coleman, D-Birmingham, was first out of the gate sponsoring replacement legislation. This bill provided that the tax would remain at 0.5% and continue to exempt certain state licensed professionals. The local Senate delegation approved Senator Coleman’s bill on April 8, 2009, and there was a rush to send the legislation for approval by the House’s local delegation and the full House. However, the ever controversial John Rogers, D-Birmingham, made it very clear that he would ask the House’s local delegation to instead pass alternative legislation. On April 16, 2009, the House local delegation (narrowly) passed Representative Rogers’ bill that would tax all previously exempted professionals, lower the tax rate from 0.5% to 0.45%, and earmark approximately $20 million of the proceeds of the tax for items such as the Birmingham-Jefferson Civic Center and transit projects. Representative Rogers made very clear at the time that he would not allow a tax exempting professionals to pass the House. Accordingly, the local legislative delegation was at loggerheads over the occupational tax fix from the very beginning.
In retrospect, what ensued after the passage of the competing bills by House and Senate and Rep. Rogers drawing his line in the sand can best be summed up by those famous lines from Macbeth “it is a tale…full of sound and fury, signifying nothing.” While Rogers seemed amenable to dropping his earmarks, he was adamant that state licensed professionals would be taxed under any bill that got passed. The backers of Senator Coleman’s bill were equally adamant that state licensed professionals should remain exempt from the tax. Throughout this saga, the county played the part of the Greek chorus in this tragedy by expounding in the media on the coming loss of jobs, loss of services and general financial ruin for the county. County employees eager not to lose their jobs stood outside the Legislature on the final day of the session to encourage lawmakers to pass a replacement tax. No legislator was swayed by this gesture or the pleas of those asking for compromise—so the inevitable happened. Rep. Rogers, as the head of the local delegation, never allowed the competing bills to go to conference committee. He feared that a compromise might be reached that would include exemptions for professionals. Thus, the “new” occupational died at the hands of its predecessor’s killers.
No Access to Current Tax Collections
After the end of the legislative session, the County had to gain access to the occupational tax collections in order to avoid the threatened layoffs and cuts. Thus, it was forced out of the Greek chorus and onto center stage. Jefferson County filed an emergency request with the Alabama Supreme Court asking that it be allowed to spend occupational taxes it collects during the pendency of its appeal to the Alabama Supreme Court. Bettye Fine Collins, head of the County Commission, stated in the May 20, 2009 edition of The Birmingham News that the county intended to continue to collect and spend the occupational tax money unless otherwise directed by the Alabama Supreme Court. On May 26, 2009, the Alabama Supreme Court denied the County’s request to spend the taxes and held the request to use the money should have first been presented to Judge Rains. Accordingly, the county made the same request before Judge Rains. This request was denied and then appealed to Alabama Supreme Court. Judge Rains’ denial was affirmed by the Supreme Court in mid-June. Accordingly, the county has no access to the occupational taxes it is continuing to collect.
County Commission Works Toward Possible Budget Cuts
When its courtroom posturing over access to the tax money was forcibly concluded, the county hit the panic button. Not a day has passed without someone associated with the county or county commission being quoted in the news media regarding huge impending layoffs and spending cuts. Travis Hulsey, County Finance Director, indicated in the June 15, 2009 edition of The Birmingham News that the necessary budget cuts are difficult to make given that 28 percent of the general fund budget is earmarked and $54 million goes toward services that the county must provide (e.g., jails, district attorney’s office). Of the remaining $165 million in planned spending, $78 million was to come from the occupational tax. In order to cut $78 million of planned spending, the county initially threatened layoffs, the closing of the central laundry and nursing home, stopping senior citizens programs, ending building inspections, the closing of satellite court houses, and postponing the opening of the new Bessemer courthouse. In late June, the county announced that the budget cuts will consist of hundreds of employee layoffs and cuts to the sheriff’s office, Cooper Green Hospital, General Services, Roads and Transportation, county nursing home, and information technology.
Sheriff Mike Hale sued over the cuts to his budget as constituting a danger to the public safety. Sheriff Hale has been successful in getting the Jefferson County Circuit Court to restrain the County from making such cuts. However, this controversy is ongoing and it is unclear what the ultimate outcome will be. Regardless of where the cuts are made and how severe they are, it is too little too late. Travis Hulsey’s most recent prediction indicates that the county will not be able to meet its payroll obligations in early August.
The Legislative Circus Resumes
Many of the legislators appear to be fiddling away while Rome is burning. A few members of the Senate’s local delegation met in early June to discuss the occupational tax debacle. However, they appeared to be concerned more with how the county managed itself and whether the county could “tighten its belt” rather than enacting a replacement tax. The entire Jefferson County delegation met on June 26, 2009 to discuss the occupational tax situation. Most of the legislators at the meeting agreed that they would be willing to work on a new tax and thought that one could be passed if a special session of the Alabama Legislature were called. However, Senator Roger Smitherman, D-Birmingham, indicated that a majority of the legislative delegation would have to agree on a bill before calling the special session.
It is surprising that the local delegation showed such a high degree of optimism given what occurred during the meeting. Senator Smitherman presented a proposal for a new tax that would drop the rate from 0.5% to 0.45 % and remove exemptions for state license paying professionals. These professionals would be allowed a deduction for the payment of state license fees. Sen. Smitherman also suggested submitting any agreed upon bill as a bill of general application, which would make it easier for the bill to get to the floors of the House and Senate without a single person having the ability to block it. This suggestion was obviously aimed at Rep. John Rogers and his single handed scuttling of the last session’s attempt at passing a tax. Rep. Rogers left the meeting half way through and derided Sen. Smitherman’s proposal as being full of “unnecessary stuff.” Of further concern is the fact that some of the legislators made very clear that no tax should be passed unless there is some oversight or controls with respect to how the county spends the money. Senator Coleman suggested the creation of an oversight committee and other legislators indicated that the county should agree to the appointing of a county manager before a new tax is considered.
The local delegation met again on July 15, 2009. Several ideas were floated during the meeting, such as adopting a tax that would phase out, taxing net wages, and taxing licensed professionals but allowing them a deduction for license fees paid. Again, no clear agreement was reached on the new tax. However, there was agreement to use a bill drafted by Steve French, R-Mountain Brook, as the starting point for an additional debate and drafting session slated for July 27, 2009. Sen. French’s bill draft is a tax on “net wages,” which consist of wage earnings less occupational expenses and retirement contributions. It would extend the tax to license professionals, but would decrease the rate in 2012 and 2013 and expire after 2014. Travis Hulsey warned the legislators that a “net wage” tax would drastically reduce the amount of money raised by the occupational tax in its first year—leaving the county in a funding crunch. The revenue situation would only get worse with the rate reducing and the tax eventually going away. Hulsey’s concerns were echoed by Rep. Demetrius Newton, D-Birmingham, and others. Clearly, the legislators have long way to go if they expect to have enough agreement over draft legislation to convince Governor Riley to call a special session of the legislature. Furthermore, Rep. French’s bill that is being used at the starting point for negotiations is possibly a county tax on net income, which is impermissible under the Alabama Constitution of 1901.
The Governor and Possible Special Session
On July 15, 2009, Jefferson County requested that Governor Riley declare a state of emergency in Jefferson County. This request was declined by the Governor’s office within a day of its submission. However, the Governor was clear that state resources such as State Troopers would be allocated to the county if the health, welfare or safety of Jefferson County residents is placed in jeopardy. The Governor does not, however, underestimate the gravity of Jefferson County’s situation. In the last few weeks, he has on multiple occasions publicly exhorted the Jefferson County local delegation to fix the occupational tax—making clear that the legislators should expect to compromise on any legislation. Furthermore, he warned members of the Hoover Chamber of Commerce that a Jefferson County financial collapse will have an impact felt statewide. Riley has committed to call a special session of the legislature for the first week in August if the local delegation can agree on a legislative fix. However, Riley wants an assurance from the legislative delegation that enough votes exist to pass the legislation before he calls the special session that will cost the state at least $110,000.
The legislative delegation will have precious little time after its July 27, 2009 meeting to agree on a bill. Reaching an agreement in time for the Governor to notice a special session for the first week of August seems ambitious to say the least. I hope that the legislators can act like grown men and women and compromise on a bill to save the county from further financial woes. Unfortunately, I think asking for adult behavior is asking a lot of some legislators. If no agreement is reached prior to August 1—which is very possible—the impact on the county will be noticeable to everyone: county workers being terminated, county payroll checks bouncing, some county services terminated, some services cut back, public buildings being open limited hours, etc. If we reach that point, the outcry from citizens deprived county services will be so loud that legislators will have no choice but to reach a meaningful compromise and pass a new occupational tax. I hope it doesn’t come to that.
Russell M. Cunningham, IV, Cunningham Firm, LLC