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

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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