Jefferson County Financial Analysis
Jefferson County, Alabama
Population: 660 thousand
Home-rule
53%42%
5%
Demographics (2010 Census)
White Black Other
Jefferson County, Alabama
Population: 660 thousand
Home-rule
Median Household 43 thousand
Per Capita 26 thousand
Below Poverty 16.5 %
Income (2010 Census)
Better than the state of Alabama average
Jefferson County, Alabama
Population: 660 thousand
Home-rule
In November 2011, filed for the most Expensive municipal bankruptcy
Jefferson County, Alabama
Population: 660 thousand
Home-rule
In November 2011, filed for the most Expensive municipal bankruptcy
4.1 billion. 3.1 billion relating to sewer work
Overview
• County historically enjoyed low financing costs• Financially stable county• High revenue stream due to taxes• Financial troubles due to sewer project
(1990s)– Corruption– Non-performing investments– Complex financial instruments
Revenue Sources (2010)
Taxes & Assess-ments55%
Licenses & Permits16%
Intergovernmental10%
Charges for Services6%
Miscellaneous13%
Interest & Investments1%
Revenue
Revenue Sources (2010)
Taxes & Assess-ments55%
Licenses & Permits16%
Intergovernmental10%
Charges for Services6%
Miscellaneous13%
Interest & Investments1%
Revenue
Sales Tax more than 10%
Expenditures (2010)
39%
16%6%
0%0%
0%1%
3%7%
28%
Expenditures
General GovernmentPublic SafetyHighway & RoadsHealth & WelfareCulture & RecreationEducation-OtherCapital OutlayIndirect ExpensesArbitage rebate paidDebt Service
Expenditures (2010)
39%
16%6%
0%0%
0%1%
3%7%
28%
Expenditures
General GovernmentPublic SafetyHighway & RoadsHealth & WelfareCulture & RecreationEducation-OtherCapital OutlayIndirect ExpensesArbitage rebate paidDebt Service
DEBT SERVICE IS HIGH BURDEN
High government cost
67% of expenditures for government costs and debt service
Current Ratio (Liquidity Ratio)
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
Liquidity ratio
Liquidity ratio
Current Ratio (Liquidity Ratio)
2006 2007 2008 2009 20100
1
2
3
4
5
6
7
Liquidity ratio
Liquidity ratio
CRISIS
Debt to Total Asset Ratio (Leverage Ratio)
2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
Leverage Ratio
Leverage Ratio
Debt to Equity (Leverage Ratio)
2006 2007 2008 2009 2010
-80
-60
-40
-20
0
20
40
Leverage
Leverage
FINANCIAL CRISIS
Times-Interest Earned (Coverage Ratio)
2006 2007 2008 2009 2010
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
2
Coverage Ratio
Coverage Ratio
Return on Net Assets
2006 2007 2008 2009 2010
-8
-6
-4
-2
0
2
4
6
Return on Investment
Return on Investment
POOR PERFORMANCE OF INVESTMENTS
Financial Troubles
• Expensive sewer overhaul related project started in the 1990s
• In 2003 take advantage of low financing costs and refinance sewer bonds from fixed rate to lower but floating rate
• Entered complex financial derivatives market to hedge against interest rate increase
• Bought complex financial instruments as their own investment
Financial Crisis• Investors lost confidence in county’s ability to
repay debt– Bond interest rates soared– County couldn’t refinance their debt
01234567
Liquidity ratio
Liquidity ra-tio
20062007
20082009
20100
0.4
0.8
1.2
Leverage Ratio
Leverage Ra-tio
DEBT SERVICE BURDEN
Financial Crisis• Investors lost confidence in county’s ability to
repay debt– Bond interest rates soared– County couldn’t refinance their debt
• Investments did not perform– Fees actually cost the county even more money
2006 2007 2008 2009 2010
-10
-5
0
5
Return on Investment
Return on In-vestment
Financial Crisis• Investors lost confidence in county’s ability to
repay debt– Bond interest rates soared– County couldn’t refinance their debt
• Investments did not perform– Fees actually cost the county even more money
• County filed for bankruptcy– 4.1 billion dollars total– 3.1 billion related to sewer overhaul