Journal

profilezhuzhuY
Howell-MoroneyandHall-WasteintheSewer.pdf

Spotlight on Critical Grassroots Public Administration Issues

Michael E. Howell-Moroney is an

associate professor of public administration

in the master of public administration

program at the University of Alabama at

Birmingham. His research explores contem-

porary problems and salient issues in urban

policy and administration.

E-mail: [email protected]

Jeremy L. Hall is an assistant professor

of public affairs at the University of Texas

at Dallas. His research focuses on the

intersection of public policy, public sector

performance, and economic develop-

ment. His research has received awards

from the National Association of Schools

of Public Affairs and Administration and

the Southeastern Conference for Public

Administration.

E-mail: [email protected]

232 Public Administration Review • March | April 2011

Michael E. Howell-Moroney University of Alabama at Birmingham

Jeremy L. Hall University of Texas at Dallas

Following failed auctions for sewer debt in April 2008, major bond rating companies downgraded Jeff erson County, Alabama’s bond rating to D (default) triggering massive mandatory payments by the county to its creditors. At the time of writing, the county teeters on the brink of actual default and bankruptcy, unable to pay service on its $3.3 billion sewer debt portfolio. If the county defaults, it will be the largest municipal bankruptcy in United States history, eclipsing Orange County, California’s 1994 default. Th e intriguingly complex tale of the Jeff erson County debt crisis is recounted here by identifying and examining failures of transparency and accountability by local bureaucratic and political actors, private fi nancial institutions, as well as the larger regulatory framework governing public fi nance. Enhanced regulation of local government and the fi nancial sector plus greater local government capacity to close accountability gaps and thus prevent future crises of similar scale in this or other jurisdictions are recommended.

Jefferson County, Alabama, is not a large county by national standards; according to the latest 2007 census esti- mates, it ranks ninetieth among all counties nationally in popula- tion. Yet when it comes to bond debt, the county unfortunately enjoys a much higher ranking. With its $4.6 billion debt, the county is sixth in the nation according to recent estimates (Velasco 2005). The county carries a varied composition of general obligation and revenue debt, mostly for school and sewer purposes, but the lion’s share, more than 70 percent of the debt, is composed of the county’s massive $3.3 billion sewer bond portfolio.

In an eff ort to save on interest expense, the county turned to complicated fi nancial derivative instruments

known as interest rate swaps. Briefl y defi ned, swaps are an exchange of fi xed- and variable-rate payment obligations between two parties. For example, one party agrees to pay a fi xed rate to the second party, while the second party pays a variable rate to the fi rst. Swaps can be used to hedge against uncertainty or speculatively to maximize returns or minimize loss. Swaps are not new to public fi nance, and numerous state, county, and municipal governments use them as a tool to manage interest costs associated with debt. However, by national standards, Jeff erson County engaged in a disproportionately large number of swap agreements, making it extremely vulnerable to exog- enous macroeconomic shocks.

In April of 2008, Jeff erson County captured national at- tention as its bond rating, awarded by Moody’s and oth-

er bond rating entities, witnessed a precipitous decline, in part be- cause of fi nancial spillover eff ects from the subprime mortgage crisis. Th is decline in the county’s bond rating, combined with an inability to sell or borrow funds on the open market without huge interest penalties, put the county in a precarious fi nancial position. Th e rating crash had an immedi- ate fi nancial impact, triggering collateral posting requirements in its swap agreements and forcing the county to make a sizeable payment that it could not aff ord. Although the county bought time through a series of negoti- ated forbearance agreements

with its creditors, its sewer bonds hold a default rating at the time of our writing. If the county does not broker a solution, it will become the new “winner by default,” eclipsing Orange County’s $1.6 billion default in 1994.

Th e Jeff erson County case presents a troubling and vivid picture of systematic breakdowns in

Waste in the Sewer: Th e Collapse of Accountability and Transparency in Public Finance in Jeff erson County, Alabama

In April of 2008, [Jefferson County, Alabama] captured

national attention as its bond rating . . . witnessed a precipitous decline, in part

because of financial spillover effects from the subprime

mortgage crisis. This decline . . . combined with an inability to

sell or borrow funds on the open market without huge interest penalties, put the county in a precarious financial position.

Waste in the Sewer 233

long useful lives and hefty price tags. Two general approaches are used to fi nance capital projects: debt and cash. Th ere are advantages and disadvantages to each. Cash fi nancing, otherwise known as “pay as you go,” requires saving for large expenditures, placing the burden on past and current generations for future public infrastruc- ture. Debt fi nancing through municipal bonds, on the other hand, allows immediate purchase and distributes the cost across the useful life of the asset.

State and local governments are required to engage in capital budg- eting under Statement no. 34 of the General Accounting Service Board (GASB 1999). Th is process is used to identify capital needs and to set the capital budget. After considering available resources, a local government determines the amount of credit required and then issues a public off ering, either competitive or negotiated, in which interested underwriters bid on the bonds. Local governments achieve effi ciency by competitively auctioning debt for these projects to the bidding underwriter who pays the highest price (which usu- ally translates into the lowest interest rate, although purchase at a premium or discount can cloud the prima facie true cost).

Sometimes bonds are diffi cult to market because of the issuer’s cred- itworthiness, meaning that the issue has a limited ability to pay, or is perceived as a high risk for default. Th ree private fi rms rate munici- pal debt, much like credit ratings for individuals: Moody’s, Standard & Poor’s (S&P), and Fitch. Higher bond ratings (the highest are AAA for S&P and Fitch, Aaa for Moody’s) are given to govern- ments with excellent fi nancial stability and the ability to pay, which translates into lower risk for investors. Th is enables the governments to sell the debt at a low interest rate.1

Local governments seek external credit enhancement by buying bond insurance to cover debt service payments to investors in the event the government fails to make required debt service payments. Corporations that insure municipal debt (Ambac, MBIA, and FGIC, for example) are rated on the basis of their fi nancial status; they are then able to sell bond insurance that carries their rating. Th e interest cost savings to the government over the life of the bonds (resulting from selling bonds at a lower rating than otherwise would be possible without insurance) are usually suffi cient to off set the cost of insurance. As we shall see in greater detail later on, bond insurance plays a central role in the Jeff erson County debt crisis. Rating agencies began to review their ratings for bond insurers in light of those insurers’ recent exposure in the subprime lending market, resulting in the downgrading of all three companies’ ratings (WM Financial Strategies 2008).

Long-term municipal debt takes two primary forms, although there are variations. General obligation bonds and revenue bonds are distinguished along several key dimensions, including the source of debt service, nature of the project funded, whether they are subject to debt limits, the cost of issuance, and consequently the nature of the rating.

Th e source of debt service refers to the obligations that the govern- ment makes to repay the debt. General obligation debt instruments commit the full faith and credit of the issuing government to repay the obligation from any revenue stream. Revenue debt is repaid by the net operating revenues (annual gross revenues minus operating

accountability and transparency. In this essay, we argue that numer- ous accountability and transparency failures contributed to a series of decisions and events that collectively led to what could become the largest municipal bankruptcy in U.S. history. In a society that is increasingly reliant on technical and specialized knowledge, govern- ing becomes diffi cult as principals and their agents often operate in diff erent domains. We argue that reduced bureaucratic and fi scal transparency and failure on the part of key agents in the public and private spheres to act ethically and responsibly conspired together to put the county in an extremely vulnerable fi scal situation. When the U.S. economy began its rapid decline in 2008, the conditions were ripe to bring about the county’s fi nancial demise.

In many ways, the Jeff erson County case serves as a cautionary tale for public administrators. Scholars in public administration have embraced the values of openness and transparency as keystones of accountable government (see, e.g., Feinberg 2001; Koppell 2005; Piotrowski and Rosenbloom 2002; Roberts 2004). Transparency serves as a check on government offi cials’ actions, but complexity has strained traditional forms of transparency; open records and open meetings make information available, but the complexity of highly specialized fi elds such as civil engineering and public fi nance is rarely understandable to the average citizen, and even to elected offi cials in many cases. O’Brien, Clarke, and Kamieniecki remind us that “[t]he growth in the size of the bureaucracy and the develop- ment of immensely technical and complex fi elds of specialization have placed tremendous powers in the hands of public offi cials” (1984, 339).

It seems that with growing technical specialization, even “tradition- al” transparency is insuffi cient for issues of great complexity. Un- fortunately, Alabama has lagged behind by traditional transparency standards. While the state has one of the oldest open records laws in the country (Code of Alabama § 36-12-40), an open meetings law with procedural requirements was passed only in 2005. As transpar- ency goes, Alabama has improved, but the tradition of secrecy is strong. As a case in point, a 2003 study showed that Jeff erson Coun- ty and the city of Birmingham fared worse than the state average in handing over public records—and worse than most counties and municipalities surveyed in the metropolitan area (Archibald 2003).

Jeff erson County’s debt crisis provides fertile ground for illustrat- ing the failures of both transparency and accountability. Our essay recounts the complicated story behind the debt crisis in Jeff erson County. We identify and examine, in their context, the fateful steps that led the county along a path of rising indebtedness and risk. We suggest that a lack of local government oversight, insuffi cient local government capacity, and a lack of regulation in the fi nancial sector, particularly as it pertains to interest rate swaps, are responsible for the current dilemma, and we suggest reforms to correct each. We begin with a short primer on public fi nance and then present an ex- tensive case history. Th e essay concludes by critically examining the Jeff erson County experience to identify key failures of accountability and suggest lessons that actors in the public fi nance arena should heed in order to avoid similar crises in the future.

Public Finance in a Nutshell—A Primer on Public Debt Capital budgeting is a reality of modern governance, and public fi nance provides the framework for purchasing capital goods with

234 Public Administration Review • March | April 2011

governing body when quorum is present. Th e code also designates a 30-year term as the maximum for general obligation debt and 50 years for revenue debt (§ 11-81-6).

The Jefferson Sewer Debt Crisis Jeff erson County’s debt crisis arose from a large portfolio of revenue bonds intended to fi nance the repair and expansion of the county sewer system. In essence, the story of the county’s debt crisis can

be broken down into three major phases, illustrated in fi gure 1. In the fi rst phase, the county is forced, by consent decree, to upgrade and repair its massive sewer sys- tem. Th e resulting repairs and upgrades go far beyond the scope of the consent decree, leading to an attendant growth of debt and sewer rates, spurring widespread discontent among ratepayers. In the second phase, the

Jeff erson County Commission, sensitive to the rising ratepayer discontent, opts for risky fi nancial solutions to the rising debt burden, refi nancing a large share of the sewer debt in the form of auction rate bonds and nearly 20 diff erent interest rate swaps. In the third phase, the unforeseeable happens: the subprime mortgage crisis spills over into the municipal debt market, triggering a series of events that puts the county on the brink of default. We now turn to an in-depth exposition of the steps that led to the county’s debt crisis.

Phase 1: The Debt Explosion Roots of the crisis: (Un)informed consent? Th e Jeff erson County bond crisis fi nds its roots in a federal lawsuit resulting in a far-reaching consent decree that required a monumental over- haul of the county’s sewer system. Sewer system problems were fi rst noted in earnest by the Cahaba River Society, a grassroots environmental citizen group. In a 1993 report, the group blasted Jeff erson County for failing to properly oversee the sewer system. In particular, the report noted that the county sewer system was regularly discharging untreated raw sewage into two major river systems within the region, the Cahaba River and the Black Warrior River.

According to the Cahaba River Society, these discharges of raw sewage into the rivers seemed to be coincident with wet seasons and large storms. Because of defi ciencies in the sewer system, large amounts of storm water and groundwater were getting into the sanitary sewer system, creating an excessive burden on end-of-the- line treatment facilities, a process known as infi ltration and infl ow (Cahaba River Society 1993). When the amount of mixed storm and sewer water became too much for the sewage treatment plants to handle, the plants would simply release some of the untreated water containing raw sewage directly into the rivers, a practice called bypassing.

Later in 1993, the Cahaba River Society joined other co-plaintiff s, including the U.S. Environmental Protection Agency, in a suit against Jeff erson County alleging that the county’s dilapidated sewer system and its associated sewage discharges violated the Clean Water Act. After nearly three years, the case was settled by a comprehensive 1996 consent decree that required the county to consolidate the sewer systems of more than 20 municipalities

and maintenance costs) of a public enterprise such as utilities, airports, or parking garages. Th e consequence of these diff erent obligations is a rating system that distinguishes between the issuer (the government entity) and issue (the specifi c debt instrument). General obligation debt considers the jurisdiction’s general ability to pay, and it is referred to as an issuer rating. Because revenue debt pledges specifi c revenue sources, usually user fees, to service debt, the debt instrument in question is rated in what is referred to as an issue rating.

Th e nature of the project to be fi nanced helps determine the type of debt to be utilized. In many cases, revenue bonds are used by enter- prises that generate revenue through service charges or user fees. In principle, general obligation debt is used for projects that do not generate revenue, such as roads and govern- ment offi ce buildings. In practice, however, general obligation debt can be, and is often, used for revenue-generating projects because of the cost advantages (i.e., lower interest rates and transaction costs) over revenue bonds (Vogt 2004).

Th e expense to issue revenue bonds is considerably higher than that of general obligation debt. Revenue bonds require additional com- ponents not found in general obligation debt instruments, including a feasibility study and covenants and indentures to protect investors. One key covenant is a mandatory coverage ratio—a ratio of net op- erating revenues to debt service requirements—to ensure continued solvency. Th ese additional components increase the amount of legal work and legal fees associated with underwriting the debt, and so increase the total cost of the issue. Vogt (2004, 327) reports that general obligation bonds cost only $8.93/$1,000 of debt on average, compared to $14.75/$1,000 of debt for revenue bonds.

Although general obligation debt is less expensive, it comes with one signifi cant drawback—limitations. Either through state constitu- tional provisions or legislative action, most states have limited the amount of general obligation indebtedness that their municipalities can assume. Th ese restrictions are usually based on a proportion of the net assessed value of taxable property or an amount per person. Most state debt caps apply only to general obligation debt, however, because the public enterprises using revenue debt are supposed to be self-fi nancing. Th e use of revenue bonds, though more expensive to issue, enables municipalities to bypass the general obligation debt limits established by their states. A second requirement intended to limit indebtedness is voter approval. Some states have no such requirement, others require approval of the legislature, and some require referenda to approve a specifi c debt issue (GAO 1996, 375; Kiewiet 1995). Th ese requirements may diff er in their application to all debt, to debt by type (general obligation versus revenue), or to debt beyond certain limits.

In Alabama, general obligation debt is subject to voter approval and to caps, defi ned as a percentage of the assessed property value. According to the Code of Alabama 1975 § 11-81-110(a), however, no referendum is required when the public improvements will be paid by a fee assessed to the property abutting the improvements; under § 11-81-141 and 11-81-142, bonds may be issued for revenue- generating projects by resolution with a majority vote of the

Jefferson County’s debt crisis arose from a large portfolio

of revenue bonds intended to finance the repair and expansion

of the county sewer system.

Waste in the Sewer 235

2003). As the sewer overhaul program’s history unfolded, there were to be many upward adjustments of initial cost estimates, ultimately leading to more bond issues and debt accumulation.

Because the county sewer system generates its own revenues, the county was able to fi nance its sewer projects through revenue bonds (technically known as warrants). Figure 2 illustrates the growth of the county sewer construction debt over time. Before the county began issuing new debt to pay for the sewer overhaul, the

under a single system and to begin extensive repairs to millions of feet of pipe sorely in need of repair (U.S.A. v. Jeff erson County, No. CV 94-G-2947-S, U.S. District Court, Northern District of Alabama, 1996).2

Of course, implementing this consent decree would be no small undertaking. Many observers naturally began to ask how much such a project would cost. Early estimates of program costs in 1996 ranged from a low of $250 million to a high of $1.2 billion (BE&K

Phase I: The Debt Explosion

• Consent decree requires massive repairs across county sewer system • Unnecessary expenditure, mismanagement and corruption lead to large

increases in program costs • Rising program costs drive issuance of more and more debt , totaling

$3.3 billion by 2003 • Rising debt costs trigger automatic rate increases for sewer customers • Rate increases anger sewer rate payers who demand a solution

Phase II: Risky Refinancing

• Pressure from ratepayers leads county to consider some sophisticated and complex financing arrangements to save on debt costs

• County refinances much of sewer debt into variable rate and auction rate debt

• County enters into a series of interest rate swap agreements with intention of reducing interest costs

Phase III: Subprime Crisis Spillover

• Macroeconomic shocks from subprime crisis spill over into municipal debt market through ratings downgrades on bond insurers due to their subprime exposure

• Insurer downgrades lead to downgrades of county debt, triggering massive interest rate increases on county's variable rate debt

• County is forced to make large payments because of rating downgrades • Payments cannot be met by county. Ratings agencies assign a default

rating on sewer debt and a widespread county financial crisis ensues

Figure 1 Summary of Key Events in the Jefferson County Debt Crisis

236 Public Administration Review • March | April 2011

would have no way of knowing just what the scope of repairs would be in each municipal sewer system that it was taking on. Subsequent discovery of extensive infrastructural problems certainly contributed to signifi cant upward revision of the initial cost estimates for implementing the consent decree (Jeff erson County Commission 2000).

Th e second reason for rising costs was the addition of numerous sewer improvement projects that, though they perhaps constituted an improvement over existing facilities, were not really required under the terms of the consent decree. Th e director of the Jeff erson County Environmental Services Department, the county offi ce that had direct control and oversight over the sewer program, asserted that almost all of the sewer and facility upgrades bankrolled through new debt were required under the terms of the consent decree, though subsequent reports cast doubt on that claim (Velasco 2005).3 An analysis by the Birmingham News estimated that one-third of the sewer upgrade projects were not required by the consent decree (Howell and Blackledge 2001). An independent investigative report by BE&K Engineering initiated by the Jeff erson County Commis- sion echoed these criticisms, fi nding that many of the projects were not necessary under the terms of the consent decree (BE&K 2003; Blackledge 2003).

A third reason for the large costs associated with the county’s massive sewer infrastructure improvement program was a lack of oversight in bidding and managing contracts. According to the BE&K report, early sewer work beginning in 1996 cost the county much more than the national average. Comparing just one compo- nent of the sewer work, the report indicated that “Jeff erson County paid $10–$20 more per linear foot . . . than other locations in the southeast U.S. during the 1996 to 2000 period. Based on approxi- mately one million feet of pipelining installed between 1996 and 2000, this represents between $10 and $20 million of additional cost” (2003, 10–14). Th e report identifi ed additional problems as well, noting that the county Environmental Services Department did not have the requisite expertise to manage such a large program (BE&K 2003).

Th e fi nal reason for growth in the cost of the county’s sewer program was infl ated costs attributable to waste and corruption. To date, 21 county employees and private contractors have been in- dicted by federal prosecutors in connection with the county’s sewer program (Velasco and Walton 2007). Numerous no-bid contracts and change orders were approved by county offi cials in exchange for bribes and other favors. Th ough exact costs are diffi cult to estimate, it is clear that corruption was a major contributor to the infl ated costs of an already severely distended sewer program (Velasco 2007). One local critic off ered a pithy judgment on corruption-induced expenditures, saying, “Th ey blew money like a drunken sailor” (quoted in Velasco 2007).

Phase 2: Risky Refi nancing Swapping ratepayer discontent for fi nancial risk. As the county’s debt began to increase, there was a need to raise more revenue to service it. Bond indenture documents required a debt coverage ratio (defi ned as net revenues available divided by debt service costs) of 1:10. In 1997, the County Commission adopted an Automatic Rate Increase Ordinance, which required automatic sewer rate increases

county had about $280 million in outstanding sewer warrants. Th e fi rst series of warrants in 1997–98 totaled just over $600 million. Th is issue was also used to pay off , or “refund” the pre–consent decree debt.

Th e county issued an additional $952 million in warrants in 1999. In just two years, the debt had grown by nearly $1.3 billion (just exceeding the highest initial estimate to complete the consent decree work). In 2001, the county issued another $275 million of warrants, followed by more warrants in 2002 totaling $949 million (the 2002 series was used to refund portions of the 1997, 1999, and 2001 warrants). Th e fi nal series of revenue warrants was issued in 2003, totaling $2.24 billion (this series was also used to refund portions of earlier issues). Th is last series of bonds was somewhat unique in that they were auction rate bonds.

Auction rate securities are long-term bonds with variable short-term interest rates. Interest is paid to bondholders during the current pe- riod using an interest rate (the clearing rate) determined in the prior auction period (Skarr 2004). When there is insuffi cient demand to purchase the securities at each auction period, the auction fails and the interest rate automatically adjusts upward to a market-indexed rate to compensate willing sellers who are unable to relinquish their positions. Auction rate securities carry greater risk to borrowers than does fi xed rate debt, and interest rate swaps (discussed later) are customarily used to limit that exposure (Skarr 2004). All told, the county issued just under $3 billion in new sewer warrants ac- cumulating a total sewer debt of $3,260,895,000 in 2007, which translates into a 1,075 percent increase in the county’s debt from 1997 to 2007.

Th e price of largesse. As the county’s debt grew, many were per- plexed by the astronomical increases in program costs. After all, the highest initial estimate for the program was only $1.2 billion. By 2003, the estimated cost of the sewer upgrade program had risen to $3.05 billion, an increase of more than 190 percent from the highest 1996 cost estimate (BE&K 2003). Th ere are several reasons why program costs grew. Some cost increases were unanticipated and legitimate, but others were attributable to mismanagement and outright corruption.

First, the consent decree required the county to consolidate many individual municipal sewer systems into one countywide system. Th is requirement certainly made estimating a fi rm cost diffi cult. At the front end of the process, the county simply

$-

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Figure 2 Growth of Sewer Debt, 1995–2007

Source: Annual Operating Budgets of Jefferson County, 1995-2007.

Waste in the Sewer 237

of sewer warrants. But user fees continued to rise, primarily because of mounting interest payments due on the debt.

Th e county’s repeated rate increases were rapidly stoking the fi res of citizen discontent. Consequently, the county commissioners, increasingly wary of criticism by ratepayers, began to look to other avenues to try to manage the county’s increasing debt burden with- out further rate increases. On the heels of a 2002 election in which the sewer debt occupied center stage, the commissioners were eager to fi nd ways to save on the costs of debt service without issuing new debt. Th ough some swaps had been initiated under the previous administration, under the leadership of newly elected Commissioner Larry Langford, majorities in the County Commission voted to ap- prove an unprecedented number of interest rate swaps intended to reduce the county’s debt service payments and keep sewer rates low. Th is seemed to be the ideal solution, for it would generate up-front cash and keep costs down, obviating the need for further large rate increases (Sigo 2007a). Before we proceed further, we digress with a brief primer on interest rate swaps.

A swap contract is an instrument used by local governments to hedge against future interest rate cost increases. As Petersen observes, the practice evolved out of a need to accomplish debt management goals without issuing new debt (1991, 312). Swaps are often considered speculative instruments because they require fi nancial managers to develop expectations about how interest rates will change in the future. Swaps customarily involve an exchange of payment obligations on debt with fl oating (variable) rates for debt with fi xed rates, though neither the initial obliga- tion nor the principal payments are aff ected (Livingston 1996; Petersen 1991).

In a swap contract, a municipal debtor swaps its obligation to pay its own debt service with an obligation to service debt held by a counterparty, which is usually a bank or fi nancial institution (Vogt 2004, 397). A government debtor holding variable rate securities and anticipating increasing future interest rate costs will seek to swap its payment obligations for obligations to pay fi xed rate debt in order to “lock in” the rate before it increases. Swaps can also oc- cur in reverse; when interest rates are expected to fall, government debtors will seek to swap their payment obligations on fi xed-rate debt with obligations linked to variable rate securities. Th e incen- tive to engage in interest rate swaps is usually a function of lower transaction costs as compared to refi nancing or refunding (Living- ston 1996).

Swaps involve exchanges of interest payment obligations, but they also exchange risk between the parties. Variable rate securities carry signifi cant risks, as we saw with the domestic home mortgage crisis surrounding variable-rate mortgages. So while swaps off er reduced cost to the government, they can add risk in exchange. Auction-rate securities add even more risk than variable-rate securities, as they are contingent on a specifi c off ering rather than market-established rates.

Jeff erson County entered into numerous swap agreements following the 2002 election. Some of those agreements exchanged the obliga- tion to pay debt service on their own fi xed-rate instruments for the obligation to pay variable rates on instruments held by banks; in

if revenues were insuffi cient to cover debt payments. As the county’s debt load rose from 1999 to 2004, the covenanted coverage ratio fell below the 1:10 threshold specifi ed in its original indentures for several years (fi gure 3). Th is spurred a series of dramatic sewer rate increases; the average household sewer bill rose from $13.48 per month (1995) to $62.90 per month (2008), an increase of more than 368 percent.

Viewing the county’s growing debt and the growing cost of sewer services to households side by side, fi gure 4 demonstrates the joint growth of debt and residential sewer rates from 1995 to 2007. Par- ticularly striking is the separation of the time series after 2003. In that year, sewer debt plateaued when the county issued its last series

2.07

1.83

1.23

1.04

0.79 0.88

1.09

1.41

0.96 0.86

0

0.5

1

1.5

2

2.5

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

C o

ve ra

ge R

a� o

s

1.10 Thresehold

Figure 3 Sewer Debt Coverage Ratios, 1995–2004

Source: Consolidated Annual Financial Report of Jefferson County, 2004. ** Note: Coverage ratio data only available through 2004.

Figure 4 Growth of Average Household Sewer Rates and Bond Debt, 1995–2007

Sources: Jefferson County Offi ce of Sewer Service; Annual Operating Budgets of Jefferson County, 1995–2007.

238 Public Administration Review • March | April 2011

the downgrade. As Pittman (2008) observes, “A downgrade of the top rated bond insurers would strip $2.4 trillion of municipal and mortgage-backed debt of their AAA guarantee, throwing doubt on the rankings of thousands of schools, hospitals and local govern- ments around the country” (emphasis added).

Th is observation turned out to be right. Th e subprime crisis eventu- ally ended up on the county’s doorstep in early 2008 with a hefty bill attached. Th e trouble began when a series of auctions for the county’s variable-rate debt failed, prompting S&P to cut its rating on sewer warrants to B status. Th e failed auctions also triggered a rise in the county’s interest obligations on the debt, forcing the county to pay rates as high as 10 percent on some of its obligations (Braun 2008; Wright 2008b).

When the major bond insurers were downgraded, rating cuts fl owed downstream to the county; one of the primary insurers was the now-troubled FGIC. Failed auctions and insurer downgrades resulted in another precipitous downgrade of county sewer bonds by both S&P and Moody’s to “junk” status (Wright 2008a). Th is downgrade triggered lender options specifi ed in the swap agree- ments. On February 26, 2008, Moody’s cut the sewer bonds to Baa3, one step above junk, activating clauses in the swap agreements that allowed the banks to exercise their right to cancel the agree- ments. Th ese required the county to repurchase the bonds and post $847 million in collateral immediately (Selway and Braun 2008). As banks began demanding that the county make a contractually required $53 million payment, the county refused, leading S&P to declare the county in default (Sigo 2008).

More than two years later, the county has been successful in secur- ing forbearance agreements with its creditors, keeping it technically out of default status (Stock 2008), but there has not yet been a clear resolution as to what the county will do to stave off eventual default. Th e county’s bond insurers are also trying to press a solution from their side. Th ey recently took the county to court in the hope of ap- pointing a receiver for the county sewer system, but it appears that there will be no quick decision from the court (Sigo 2009b).

A series of investigations have been launched into the swaps themselves. Th e SEC undertook an extensive investigation of the fi - nancial institutions and local offi cials involved in the swaps. Former commissioner Larry Langford (who went on to serve as mayor of Birmingham), has been convicted by the SEC on charges of fraud in connection with some of the bond transactions. Moreover, the county has been criticized for its lack of competitive bidding for the swaps, a practice that unfortunately is common in swap agreements (Whitmire and Walsh 2008). Independent analysis by a local ac- counting fi rm shows that the county paid $120 million in fees to ex- ecute the swaps—more than six times ordinary costs (Sigo 2007b).

A lack of transparency and bidding competition has drawn the SEC’s attention to many of the fi nancial giants that were involved in the swap deals, including JPMorgan Chase and Bear Stearns (Selway and Braun 2008). In 2009 the, SEC brought suit against JPMorgan Chase, alleging that members of the bank had made illegal payments to gain county bond business. Th at suit resulted in a settlement agreement that freed the county from some of its costly cancellation fees owed to the investment bank (Walsh 2009). In the

others, the exchange occurred in reverse. Th e preponderance of the later swaps exchanged up-front cash payments from the banks and obligations to pay higher variable rates than those received. While early swaps may have been responsible hedges against uncertain in- terest rate changes, the recent swaps reveal incompetent and myopic management eff orts to delay the county’s fi scal demise.

Jeff erson County entered into $1.5 billion of swaps with Bear Stearns and a $380 million swap with Bank of America under these terms in June 2004, but received only $25 million in cash (Selway and Braun 2008). All told, the county entered into 17 swap agreements between 2002 and 2004, with varying terms and conditions (Moody’s Investors Service 2005). Th e sheer volume of swaps was unprecedented; a former Securities and Exchange Com- mission (SEC) offi cial stated unequivocally, “I don’t think there’s anyone who has been involved in the swaps and derivatives market to the extent that the Jeff erson County sewer system was” (quoted in Whitmire and Walsh 2008). Th ese arrangements gave Jeff erson County the distinction of being the single largest county holder of interest-rate swaps in the United States at a total of $5.8 bil- lion; signifi cantly, the notional amount of the swap agreements far exceeded the amount of bonds they were intended to hedge (Selway and Braun 2008; Whitmire and Walsh 2008). Unfortunately, the county’s high degree of fi nancial leverage under the swaps eventually took a turn for the worse. Th e payments that the county received under its swap agreements, which were supposed to cover the inter- est payments on its fl oating-rate bonds, decreased, widening the gap between the county’s obligations and its ability to pay.

Phase 3: Subprime Crisis Spillover It’s the economy, stupid! Although the number of the county’s swaps was unusual, this did not raise red fl ags for the major rating services. In a 2005 rating report, Moody’s affi rmed the county’s A3 (investment grade) sewer warrant rating. Addressing the swaps, the report concluded that “the county’s use of derivatives to manage its debt portfolio does not present undue risks for bondholders, but notes that under certain scenarios, the county’s fi nancial stability could be impacted by the need to post collateral within a short time frame” (2005, 4). Collateral posting requirements contained in the swap agreements ultimately would prove to be the fatal linchpin for the county as that scenario came to fruition.

Moody’s, S&P and Fitch rate the credit of the major bond insur- ance companies. Th e insurance companies’ stellar AAA credit rating translates into good insurance; good insurance means less risk and lower interest rates for the insured debt. Th e volatility in credit markets in late 2007 and throughout 2008 had a negative impact on bond insurance companies that previously had extended their purview into hard-hit areas such as the subprime lending market (Pittman 2008).

Th e negative potentiality was realized in February 2008, when Moody’s cut the rating of FGIC’s insurance units six levels, from AAA (highest grade) to A3 (medium grade), with the possibility of future cuts (Pittman 2008). Th e trend continued with rating cuts for MBIA and Ambac in June. Th e downgrade of those bond ratings meant the rating agency found the insurance companies’ abilities to pay not as sound as they were previously, so the bonds insured by those companies were viewed as riskier than they were before

Waste in the Sewer 239

they have considered total debt levels, including revenue debt, though neither the state constitution nor code requires it? Th ese questions are all the more troubling because regular county fi nancial audits failed to raise any signifi cant red fl ags. It is possible to follow the rules and still act irresponsibly.

Turning to the second phase of the crisis, the County Commission took a hands-on approach, opting to negotiate and execute swap arrangements themselves (Archibald 2008). So controllability, in the traditional sense, plays a minor role. Th e county fi nance direc- tor carried out the will of the commission in issuing the revenue bonds and in organizing swap arrangements. However, many noted that the county paid exorbitant fees to initiate these swaps, sug- gesting that a more competitive process might have produced a less costly set of arrangements. It is also curious that the degree of risk exposure for the county was not made more explicit in the county’s regular annual fi nancial audits.

Th e County Commission felt pressure to keep taxes and fees low in order to keep citizens happy and to further their own reelec- tion goals. Here we see a perverse incentive at work: by narrowly construing responsiveness as fi nding any means necessary to keep rates low, the commission ignored its larger fi nancial responsibilities. It was too busy treating the symptoms to address the underlying condition. By entering into so many complex and expensive swap agreements, the commission was responsive, but in a very destruc- tive way. It weighted present costs and political expediency more heavily than future risks in its fi nancial calculus.

In the third phase of the crisis, as the subprime market failures spilled over into the municipal debt markets, local actors were less culpable, though their previous actions left the county vulnerable to such macroeconomic shocks. Moody’s and other ratings agencies understated the implicit fi nancial risks associated with the bonds by continuing to validate the county’s actions with high credit ratings. In December 2007, less than four months before the assignment of junk ratings, Moody’s affi rmed its investment-grade A3 rating on the sewer debt (Sigo 2007a). Many observers warned of the potential problems associated with the U.S. credit boom, which ultimately was responsible for the series of events precipitated by the subprime mortgage crisis. And Moody’s did note that a change in economic conditions could lead to trouble for the county. We contend that this knowledge should have tempered their rating.

It is also clear in retrospect that bond insurers exposed themselves to cross-sector risk by insuring mortgage-backed securities and other fi nancial derivatives associated with the mortgage lending industry. In the third phase, we see a widespread lack of accountability and fi scal prudence in the private sector. Did their failures cause Jef- ferson County’s problems? We think not; the county’s burgeoning debt likely still would have reached crisis proportions. But the chain of events in the bond insurance industry that pushed the county to the crisis point reveal a troubling interdependency among fi nancial sectors in which a crisis in the mortgage sector spilled over into the municipal fi nance sector.

Lessons and Pathways to Solutions Some responsibility falls to the state and federal government. Spe- cifi c laws and rules for conducting business should be established or

aftermath of the SEC action, the county fi led its own suit against both JP Morgan and Langford seeking further compensation.

Long-term ramifi cations. Exorbitant sewer rate increases will only continue to grow, reducing the taxing power of other government jurisdictions as household income is further decreased by the sewer user fees. Again, in a county facing economic decline and outmigra- tion, fee increases are problematic for economic development eff orts as potential residents and businesses locate in environments with preferable cost structures and government stability.

While revenue bond credit ratings focus on the issue, rather than the issuer, the Jeff erson County default signals that the county is unwilling or unable to pay the debt service on its debt. Th is has implications for public fi nance in overlapping jurisdictions and overlapping service and tax systems. Because the same resource base is used to compute credit ratings, the same income or assets are used to determine ability to pay. Th e result is that all debt originating in Jeff erson County is now suspect, and the ills will spread to other jurisdictions (Wright 2008a). At least one bond insurer, Financial Security Assurance, which was downgraded by Moody’s from Aaa to Aa3, decided to no longer insure debt in the state of Alabama (Archibald 2008).

A Litany of Failures Looking back at the case of Jeff erson County, there are a number of apparent failures of transparency and accountability. We isolate the most important failures in each phase of the county’s fi nancial demise.

In the fi rst phase, key breakdowns set the stage for crisis. First, there was a breakdown in controllability between the commission and the department in terms of which sewer projects were necessary under the consent decree. Before the commissioners ordered the program’s formal study by BE&K, there was little oversight of the Environ- mental Services Department, which enabled the department to con- tinue with questionable management practices and expanded scope of unnecessary projects. Second, beyond unnecessary expenditures, the Environmental Services Department was rife with corruption. In the truest sense, offi cials were not accountable to relevant laws in carrying out their duties in the Environmental Services Depart- ment. Not only did the department fail to live up to ethical norms through its involvement in corruption and taking bribes, but argu- ably its lax contract and fi nancial management was a violation of the public trust. Every senior member of the county Environmental Services Department staff was convicted on charges of bribery and conspiracy (Velasco and Walton 2007).

Accountability breaks down when we consider responsibility for the public purse in Jeff erson County. Although debt per capita soared beyond reasonable standards following these deals, state law exempts revenue debt from borrowing caps, and swaps remain legal fi nan- cial management tools. Here we see that gaps in existing laws and regulations provided an opening for many of the fateful debt fi nance decisions that the county undertook. In fact, the presence of a gap in the rules made it diffi cult to measure responsibility prospectively, though certainly the debt crisis makes a retrospective reckoning easier. Th is gap raises many troubling questions. Should offi cials have commissioned a study of the county’s debt capacity? Should

240 Public Administration Review • March | April 2011

short-term sewer rates anchored the commission to solutions that addressed that problem without recognizing the intrinsic risks that the swaps posed (Bazerman 2006).

Of course, each of these suggestions requires substantially improved management capacity. Th e addition of a county manager would

enhance accountability and improve local management capacity. Th e current county system has no manager, and each of its fi ve commissioners presides over diff erent depart- mental areas of county government. State legislators have argued that adding a county manager might improve professionalism and decision making, echoing the historical argu- ments from the reform movement for greater administrative expertise in local government. In 2009, state legislators passed a bill that would authorize the commission to hire a county manager, although the bill does not make it mandatory for them to do so (White 2009).While we do not view this as a panacea, it likely would integrate decision making in a way that would prevent similar future problems.

An additional improvement requires enhancing the methods used by private sector ratings agencies. Until the subprime crisis spread in earnest, Jeff erson County still enjoyed a very high bond rating. Th e Jeff erson County crisis serves as a strong argument for future ratings schemes and disclosures to adequately take into account the eff ects of an exogenous economic shock when rating the fi nancial stability of local bond issues.

Finally, clearer goals and objectives should be specifi ed. In this case, the mandate of the consent decree was blended and intertwined with the largesse of the Environmental Services Department, mak- ing it diffi cult to distinguish what projects addressed which goals. Th e BE&K report was a step in the right direction, as it at least attempted to delineate which work was necessary under the consent decree. In fact, the newly seated County Commission did move to more tightly control project costs in an eff ort to be more responsi- ble, but despite this, the sewer debt grew more than $800 million from 2003 to 2004, even after those measures were in place.

Conclusion As a study in decision making, it is clear that no single decision was completely responsible for the debt crisis. Rather, several incremen-

tal decisions share responsibility, and context played an important role in shaping the result. Th e consent decree created the foundation on which the failure was built. While the extent of the project could not have been estimated perfectly, the court might have taken greater precautions to ensure the feasibility of the solution imposed and consented to by the par- ties. Second was the expansion of the county sewer program beyond the mandates of the consent decree; though it supported political goals, the eff ort was starkly disproportionate to

altered. Jeff erson County overextended itself with sewer warrants, some of which were necessary and some of which were not. Th e use of 40-year warrants is an indication that ability to pay was weak, given the normal 20–30 year life of revenue bonds and warrants (Vogt 2008, 248–49). Referenda for public debt approval is a strong form of direct responsiveness provided for by the Alabama Constitu- tion. However, the absence of such a require- ment for revenue debt leaves public offi cials free to act as they see fi t. At least in Alabama, general obligation debt calls for responsive- ness as well as responsibility, while revenue debt requires only responsibility. A two-tiered rate and cap system may be needed to control future borrowing, such as a certain number of dollars per person in general obligation debt or in total debt from all sources.

Interest rate swap regulation must be im- proved. Jeff erson County clearly abused swap agreements in an attempt to buy its way out of higher sewer rates and potential default. Of course, the result was higher sewer rates and actual default. Th ere is room to argue about the effi cacy of swaps—it might have been an ideal cost-saving instrument if the interest rate market had acted as the commission anticipated. In either event, swaps need to be better regulated at the state and/or federal level to ensure that government participants measure and comprehend the risk imposed by both a worst probable and worst possible situation (Johnson and Ross, 1991). While not limiting swaps outright, regulation can ensure that local offi cials take a longer-term outlook. Requirements to pub- lish announcements of intended swaps and risk calculations could enhance transparency as well, as could public forums on the topic.

While it is certainly diffi cult to determine acceptable levels of risk, the county could have taken a number of reasonable steps to better ascertain acceptable levels of risk and to trade immediate costs for greater risk. A number of simple performance measures should have been considered, including total debt and total debt per capita. As noted, Alabama does not limit revenue-backed debt, but the measure is simple to compute from readily available data. Th e county could have utilized these ratios to benchmark their indebted- ness against similar counties. Given Jeff erson County’s position at the top of most lists comparing debt or the number and amount of swap agreements, we suspect this would have given commissioners a hint that their actions were beyond ordinary. Debt ratios can be estimated accurately before borrowing.

An additional step that the county could have taken is to perform sensitivity analysis at each decision stage; a “what if?” analysis could have been very useful. Th ough swaps are largely unregulated at present, the County Com- mission could have calculated the estimated eff ects of their proposed decisions under increasing interest rates, decreasing interest rates, changing bond ratings, or investor inter- est on important outcomes. As we intimated earlier, we believe the signifi cant focus on

Referenda for public debt approval is a strong form of direct responsiveness

provided for by the Alabama Constitution. However, the

absence of such a requirement for revenue debt leaves public

officials free to act as they see fit. At least in Alabama, general obligation debt calls for responsiveness as well as responsibility, while revenue

debt requires only responsibility.

As a study in decision making, it is clear that no single decision was completely responsible for the debt crisis. Rather, several incremental decisions share responsibility, and context played an important role in

shaping the result.

Waste in the Sewer 241

References Archibald, John. 2003. Metro Area Access Better. Birmingham News, June 1. ———. 2008. New York Trip by Jeff erson County Offi cials Left Dark Mark.

Birmingham News, April 8. Bazerman, Max H. 2006. Judgment in Managerial Decision Making. 6th ed.

Hoboken, NJ: Wiley. BE&K, Inc. 2003. Jeff erson County Program Review. Birmingham, AL: Jeff erson

County Commission. Blackledge, Brett. 2003. Report Points to Misspent Millions. Birmingham News,

April 16. Braun, Martin. 2008. Alabama County Is Center of Muni Turmoil as Debt Cut.

Bloomberg.com. http://www.bloomberg.com/apps/news?pid206700 [accessed April 3, 2008].

Braun, Martin, and Michael McKee. 2008. Alabama’s Riley Says State Won’t Bail Out Jeff erson County. Bloomberg.com. http://www.bloomberg.com/apps/ news?pid2067001 [accessed June 19, 2008].

Cahaba River Society. 1993. Sewage and the Cahaba River. Birmingham, AL: Cahaba River Society.

Feinberg, Lotte E. 2001. Mr. Justice Brandeis and the Creation of the Federal Regis- ter. Public Administration Review 61(3): 359–70.

Government Accounting Standards Board (GASB). 1999. Preface and Summary of Statement no. 34. http://www.gasb.org/st/index.html [accessed December 14, 2010].

Haldane, David. 2008. O.C.’s Folly May Be Surpassed; An Alabama County Weighs Bankruptcy on Far Greater Debt. Los Angeles Times, April 11.

Howell, Vickii, and Brett Blackledge. 2001. Th ird of Sewer Costs Not Ordered by Court. Birmingham News, June 10.

Jeff erson County Commission. 2000. Investor Newsletter, Jeff erson County, AL. Johnson, R. Bradley, and Bernard H. Ross. 1991. Risk Management. In Local Gov-

ernment Finance: Concepts and Practices, edited by John E. Petersen and Dennis R. Strachota. Chicago: Government Finance Offi cers Association.

Kiewiet, J. Roderick. 1995. Constitutional Limitations on Indebtedness: Th e Case of California, In Constitutional Reform in California: Making State Government More Eff ective and Responsive, edited by Bruce E. Cain and Roger G. Noll, 377–97. Berkeley, CA: Institute of Governmental Studies Press.

Koppell, Jonathan G. S. 2005. Pathologies of Accountability: ICANN and the Challenge of “Multiple Accountabilities Disorder.” Public Administration Review 65(1): 94–108.

Livingston, Miles. 1996. Money and Capital Markets. 3rd ed. Malden, MA: Blackwell.

Moody’s Investors Service. 2005. Moody’s Affi rms A3 Ratings And Stable Outlook on Jeff erson County’s $3.3 Billion Sewer Revenue Warrants. News release, Moody’s Investors Service, Global Credit Research.

O’Brien, Robert M., Michael Clarke, and Sheldon Kamieniecki. 1984. Open and Closed Systems of Decision Making: Th e Case of Toxic Waste Management. Public Administration Review 44(4): 334–40.

Petersen, John E. 1991. Debt Markets and Instruments. In Local Government Finance: Concepts and Practices, edited by John E. Petersen and Dennis R. Stra- chota. Chicago: Government Finance Offi cers Association.

Piotrowski, Suzanne J., and David H. Rosenbloom. 2002. Nonmission-Based Values in Results-Oriented Public Management: Th e Case of Freedom of Information. Public Administration Review 62(6): 643–57.

Pittman, Mark. 2008. FGIC Loses Aaa Insurance Credit Ratings at Moody’s (Update2). Bloomberg.com. http://www.bloomberg.com/apps/news?pid =20601087&sid=adTOpUQ9qNzo&refer=home [accessed February 14, 2008].

Roberts, Alasdair. 2004. A Partial Revolution: Th e Diplomatic Ethos and Transpar- ency in Intergovernmental Organizations. Public Administration Review 64(4): 410–24.

the community’s ability to pay. Maintenance was overshadowed by a desire to expand. Along the way, corruption and mismanagement aff ected the quality and cost of the work. Decisions to enter swap arrangements increased the county’s risk and broadened the sewer warrants’ impact beyond the enterprise to the county as a whole, even to the state of Alabama. Decisions made in an environment of uncertainty are often bad decisions. Probable and possible risks associated with each incremental bond issue were not considered or were underestimated; the county budget reports debt was needed for consent decree projects each year. If the long-term risks were consid- ered, they were weighted less heavily than short-term sewer rates.

Of course, decisions are only relevant in their context, and changes in the larger national economic outlook provided the mechanism that moved the risk from potentiality to reality. Th e subprime mortgage crisis caused uncertainty in the national bond insurance industry because of their decision to diversify into collateralized instruments. In this regard, the Jeff erson County crisis is, at least in part, a casualty of the larger global fi nancial crisis. Yet even without the precise foreknowledge of the macroeconomic events that pre- cipitated Jeff erson County’s local crisis, the commission should have had a more sober assessment of the attendant exposure to exogenous shocks created by its fi nancial decisions.

It sometimes takes external forces to reveal the accountability fail- ures that exist beneath the surface. As the global crisis deepens, fail- ures such as those demonstrated in Jeff erson County may become commonplace as greater pressure reveals the failures in municipal governments nationally. Th e state and federal regulatory systems and local accountability structures in place will vary the amount of stress each system can bear before crisis reveals its shortcomings. Th is case reveals areas in which greater accountability enforcement should be directed at the local, state, and national level to prevent future crisis. It is our hope that the Jeff erson County experience will serve as a cautionary tale to prevent similar fi nancial ruin in other municipal contexts.

Notes 1. Bond ratings consist of a combination of letters, numbers, and, in some cases,

plus and minus signs. Th e key to interpreting ratings is to remember that A is better than B, C, or D; 1 is better than 2 and 3; and plus is always better than no symbol or minus. Th e tricky element is to recall that more of the same letter is better. So, for example, AAA is preferable to AA+ or Baa1. Likewise, Baa1 is preferable to Ba1, Ba2, or Caa. It is tricky to make direct comparisons across the three major rating agencies because Moody’s rating schedule does not utilize the same scheme as the others. (For an excellent comparison, see Vogt 2004, 222.) As the bond rating falls, there is a greater risk of nonpayment or default, and the interest rates increase.

2. A consent decree is a legal agreement between parties to a lawsuit in which the defendant agrees to cease the off ending activity in exchange for the charges being brought to an end short of a judicial verdict.

3. An important organizational sidebar is the organization of county government in Jeff erson County. Jeff erson County operates under a commission form of government, with fi ve commissioners who share responsibility for legislative and executive functions. Th e commission appoints directors of each unit, including the Environmental Services Division, and provides oversight through a commit- tee of three commissioners with a designated chair. Th ere is no executive, such as a city manager or county mayor, to provide executive oversight or coordination across departments. All power resides with the commission.

242 Public Administration Review • March | April 2011

Roberts, Nancy C. 2002. Keeping Public Offi cials Accountable through Dialogue: Resolving the Accountability Paradox. Public Administration Review 62(6): 658–69. Selway, William, and Martin Braun. 2008. JP Morgan Swap Deals Spur Probe as Default Strikes Alabama County. Bloomberg.com. http://www.bloomberg.com/apps/

news?pid20670001 [accessed June 19, 2008]. Sigo, Shelly. 2007a. Moody’s Affi rms Jeff erson County, Ala.’s $3.25 Billion of Sewer Warrants. Th e Bond Buyer, December 27, 3. ———. 2007b. Porter White: Jeff erson County, Ala. Overpaid for Swaps. Th e Bond Buyer, May 7, 41. ———. 2008. S&P Drops Some Jeff erson County Sewer Warrants to D from CCC. Th e Bond Buyer, April 3, 6. ———. 2009a. Jeff erson County Ruling Likely to Wait; Sewer Bills Filed. Th e Bond Buyer, March 30, 3. ———. 2009b. Alabama’s Riley Asks U.S. for Help with Jeff erson Debt. Th e Bond Buyer, March 26, 5. Skarr, Douglas. 2004. Issue Brief: Auction Rate Securities. Sacramento: California Debt and Investment Advisory Commission. http://www.treasurer.ca.gov/Cdiac/issuebriefs/

aug04.pdf [accessed December 14, 2010]. Stock, Eric. 2008. Jeff co Approves Agreement to Delay Bond Debt Payments. Birmingham News, May 31. U.S. General Accounting Offi ce (GAO). 1996. State Practices for Financing Capital Projects. In Handbook of Debt Management, edited by Gerald J. Miller. New York: Marcel

Dekker. Velasco, Eric. 2005. Digging Deeper into Debt. Birmingham News, July 17. ———. 2007. Waste. Mismanagement. Corruption. In the Final Analysis, Jeff erson County Ratepayers Foot the Bill. Birmingham News, July 5. Velasco, Eric, and Val Walton. 2007. McNair Gets 5 Years in Sewer Bribe Case. Birmingham News, September 20. Vogt, A. John. 2004. Capital Budgeting and Finance: A Guide for Local Governments. Washington, DC: International City/County Management Association. Walsh, Mary Williams. 2009. J.P. Morgan Settles Alabama Bribery Case. New York Times, November 4. White, David. 2009. Gov. Bob Riley Signs Jeff erson County Manager Bill into Law. Birmingham News, May 22. Whitmire, Kyle. 2008. U.S. Sues Alabama Mayor in Bond Deals. New York Times, May 1. Whitmire, Kyle, and Mary Williams Walsh. 2008. High Finance Backfi res on Alabama County. New York Times, March 12. Wright, Barnett. 2008a. Bonds at Base Junk Rating. Birmingham News, April 2. ———. 2008b. Jeff co Fails to Get Deal on Sewer Debt. Birmingham News, April 8. WM Financial Strategies. 2008. Bond Insurance. http://www.munibondadvisor.com/BondInsurance.htm [accessed December 14, 2010].

Announcing …

The 33rd Annual Conference of the European Group for Public Administration of IIAS

Bucharest, Romania September 7–9, 2011

For more information, visit:

http://egpa2011.com

Copyright of Public Administration Review is the property of Wiley-Blackwell and its content may not be

copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written

permission. However, users may print, download, or email articles for individual use.