Tag Archives: government spending

How to Dig a Four Billion Dollar Hole

By Cameron Smith

Recently, Jefferson County, Alabama filed the largest municipal bankruptcy in U.S. history. However, the filing is only the latest chapter in a sad story for the county as well as the state. More importantly, many Alabamians have little idea how a county of less than 700,000 residents was able to accumulate more than $4 billion in debt.

In 1993, three Alabama citizens filed suit alleging that Jefferson County was polluting the Cahaba and Black Warrior Rivers in violation of the Clean Water Act. This case ultimately merged with a similar lawsuit filed by the EPA in 1994. In 1995, the judge in the case granted summary judgment for the EPA and plaintiffs because the facts, even viewed in a manner most favorable to Jefferson County, clearly demonstrated that the county had violated federal law. Instead of challenging the ruling further, Jefferson County agreed to negotiate a settlement known as a consent decree.

A consent decree is a judge’s order based on a voluntary agreement between parties in a lawsuit, which is enforceable by contempt and can be modified only by court order. In this case, the consent decree provided a mechanism for remedying flaws in the sewer system. The decree called for the county to provide the EPA with a series of evaluations of the sewer system which, in turn, resulted in an implementation plan to correct the offending features of the system.

Unfortunately, the decree also contained a provision that the county could, at its own discretion, make modifications to the implementation plan for “projects not specifically covered by [the] [c]onsent [d]ecree.” This provision permitted Jefferson County to add projects to their sewer improvement plans while giving the impression the improvements were necessitated by the initial consent decree.

In a comprehensive doctrinal dissertation at Auburn University entitled Jefferson County, Alabama: A Perfect Storm of Ethical, Financial, Political, and Market Failures, Louis Ray Morris, Jr. notes that Jefferson County’s 1997-1998 capital budget contained 50 projects required by the consent decree as well as 54 additional sewer-related projects, twice as many projects as actually necessary.

As the cost of the sewer system ballooned, Jefferson County engaged in the risky practice of municipal interest rate swaps as a means to protect against higher future interest rates on the county’s variable rate debt. These swaps were supposedly going to save the county more than $200 million. A Bloomberg Markets article released in 2008 noted that Jefferson County paid banks “$120 million in fees-six times the prevailing rate-for $5.8 billion in interest-rate swaps.” Instead, rates changed direction and the county piled on almost $300 million in additional debt.

The construction and financing of the sewer system were also fertile ground for criminal activity. The flexibility and lack of transparency afforded by the consent decree enabled more than two dozen Jefferson County commissioners, employees, and contractors to engage in a wide range of illegal activities.

To make matters worse, Jefferson County’s occupational tax, which accounted for around $66 million in fiscal year 2010, was struck down as unconstitutional. Legislators in Montgomery have been unable to reach an agreement to replace the lost tax revenue, in part because of concerns over the county’s recent history of poor management, lack of planning, and criminal activity. But even if those revenues remained consistent and were entirely allocated to paying Jefferson County’s debt obligation, it would take more than sixty years to pay off the principal owed without accounting for interest.

In the bankruptcy filing, Jefferson County acknowledged more than $3 billion in outstanding sewer warrants, more than $800 million in school capital improvement warrants, and more than $200 million in general obligation warrants. With accelerated payment and penalty interest provisions, the county’s debt could increase exponentially.

Jefferson County residents now face bankruptcy and a $4 billion hole that translates to more than $6,500 in debt for every resident of the county. Jefferson County leaders dug that hole the same way the federal government dug a $15 trillion one: nobody held government officials accountable for playing fast and loose with borrowed money. If this pattern continues in Alabama and across the country, Jefferson County’s fall will be just the beginning.

Cameron Smith is General Counsel for the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

Creating Jobs

By Congressman Steve Austria

Currently, the national unemployment stands at more than 9 percent, we have experienced 28 months of unemployment above 8 percent, and Ohio’s unemployment is more than 8 percent. In our own communities we have seen these statistics play out on a daily basis. Most of us know of a family member or friend struggling to find work or may know of a local business that has just shut its doors. Many people have lost their homes and a lot of students coming out of college and graduate programs are unable to find the level of gainful employment they are seeking. To put a difficult issue simply, we are facing tough economic times.

June marks the one-year anniversary of this President declaring a “Summer of Recovery.” In my opinion, last summer seemed like anything but a recovery, and this summer is not looking much different. The truth of the matter is that the last Congress failed to deliver on the promises they made to put Americans back to work. We are now faced with a crippling national debt that threatens the ability to help our country stay competitive in the global marketplace.

To jump start our economy and get Americans back to work, we must go in a different direction than where the previous Congress led us. It is time to get America back to what it does best – which is creating, innovating and leading the world. I am committed to taking every possible step to help get our country back on track and Americans back to work, but I will not do it by putting the tab on our children and grandchildren.

Since January, my Republican colleagues and I have worked furiously to cut spending. These funding debates have not been easy, and tough decisions have been made and are still being made. Our philosophy is based on the tried-and-true economic principle that we must stop borrowing and cut spending which will provide more certainty in the private sector and thus grow the economy.

In order to regain the confidence small business owners and entrepreneurs need to hire new workers and expand, we must remove the Washington red tape and the unnecessary, burdensome regulations. We must streamline the tax code and lower the tax rate for businesses and individuals to spur investment back into the economy and encourage growth. Furthermore, it is important that we promote lower energy costs through increased production, have less reliance on foreign oil, and encourage all forms of domestic energy production.

To learn more about our plan to put the economy back on track, please visit www.jobs.gop.gov.

Most Americans Say Government Has Too Much Money and Spends It Unwisely

A new Rasmussen Reports national telephone survey finds that 61% of Adults think the federal government has too much power and money.

Perhaps that’s no surprise since 66% believe America is overtaxed.

An overwhelming 70% of adults say the government does not spend taxpayer’s money wisely and fairly. Just 16% believe the government does spend this money correctly, while another 14% are not sure.

Eighty-five percent (85%) of Republicans and 60% of adults who are not affiliated with either of the major political parties believe the government has too much power and money, a view shared by just 39% of Democrats.
Just 47% of government workers say the government has too much power and money, compared to 65% of those who work in the private sector.

Republicans and unaffiliateds also feel more strongly than Democrats that the government does not spend taxpayers’ money wisely and well.

When it comes to the economy, the message from Americans is clear: Leave it in the hands of the private sector and not the government. That sentiment is shared by sixty-eight percent (68%) of voters who prefer a smaller government with fewer services and lower taxes to a more active one that offers more services and higher taxes. A plurality of Americans believe that government programs increase poverty in America.

Source: Rasmussen Reports, October 17, 2010