Alabama County Aims to Slash 33% of Workers

By KELLY NOLAN

Jefferson County, Ala., struggling with the fallout of a failed sewer bond financing, is considering whether to lay off nearly one-third of its work force in an effort to stave off what would be the largest municipal bankruptcy in U.S. history, a county official said Monday.

The county's finance committee will meet Tuesday to discuss the possibility of $12.3 million in budget cuts, which would include 697 layoffs, Commissioner Jimmie Stephens said. He said the five-member county commission could vote by week's end on the cuts, which would affect all of the county's departments.

"We must become accustomed to a lesser amount of services," given the county's current circumstances, Mr. Stephens said. The proposed cuts would allow the county to operate through the end of this fiscal year, he said. As much as $30 million in additional cuts, on an annualized basis, may be necessary in the next fiscal year, which starts Oct. 1.

"We don't know what the revenues are that we will have yet," he said. "We will match our services to our revenues."

The cuts are necessary because the county lost a crucial revenue source in March when the state Supreme Court ruled that a jobs tax, which brought in about one-third of the county's operating revenue, was unconstitutional. The lost tax revenue represents an even larger portion, roughly 44%, of the money the county actually has control over for general operations, due to the "earmarking" of most revenue for various purposes, Mr. Stephens said.

The loss of the tax comes as the county has already been battling bankruptcy for roughly three years, thanks to $3.2 billion in debt it accrued from the soured sewer-system financing. The county, home to the state's largest city, Birmingham, is also recovering from a disastrous tornado in late April that, according to the Jefferson County Emergency Management Agency, killed 21 people and destroyed about 5,700 structures. Filing for municipal bankruptcy is "still on the table" as an option for the county, but only as a last resort measure, Mr. Stephens said.

County officials had hoped state legislators would pass a law that would give the county the ability to raise its own revenue to replace some of the money lost from the jobs tax. But time is running out as the legislative session ends this week.

So far, out of a number of proposals made to help the county with its finances, lawmakers have only approved a bill that would let the county impose a business license tax, expected to raise $7 million a year.

Meanwhile, Jefferson County also said in a disclosure filing Friday that it received a letter from the Internal Revenue Service, which wants to examine $2.3 billion of sewer debt it issued in 2003 to ensure it is in compliance with federal tax laws.

"The county is in the process of providing the information requested by the IRS and will cooperate with the IRS," said the filing, which was made on the Municipal Securities Rulemaking Board's Electronic Municipal Market Access website.

An IRS spokeswoman declined to comment on the Jefferson County disclosure. Mr. Stephens also declined to comment.

Write to Kelly Nolan at kelly.nolan@dowjones.com