5 Years Of Litigation Over Jefferson County Alabama’s Occupational Tax Brought Government To Its Financial Knees, Threw 100’s Of Families In Turmoil, Cost Taxpayers Many Millions, Made Millions For Law Firms, And Saved Workers About $4 A Week

BIRMINGHAM, ALABAMA — Five-plus years of litigation over Jefferson County’s occupational tax has brought government to its financial knees, thrown hundreds of families in turmoil, made millions for a few law firms and saved workers about four dollars a week, a Birmingham News analysis showed.

The lawsuit Edwards v. Jefferson County, filed in May 2007, killed the original tax. The December 2009 suit, Weissman v. Jefferson County, delivered the fatal blow to a replacement tax passed four months earlier.

For workers with jobs in Jefferson County, the litigation rid them of a widely unpopular tax on their wages, and even earned them a modest refund.

But it also opened a Pandora’s Box, pushing Jefferson County back to the horse-and-wagon days when doing government business took all day.

The occupational tax generated roughly $1 billion for county spending during its 23 years in existence, an analysis of county and court records shows.

The tax provided $69 million in the 2008 budget year, some 40 percent of the county funds that were not already earmarked for a specific purpose.

But commissioners have not seen a full year’s worth of revenue from the occupational tax since 2009 and not even a nickel from it since November 2010, the News analysis showed. In addition, the county has had to refund several months’ worth of the tax revenue.

Through the budget that takes effect on Monday, commissioners have cut General Fund spending in half during the tax litigation.

Nearly 900 county employees have lost their jobs since May 2007, county records show. More than 2,000 county workers and their families suffered months of reduced wages in 2009 and 2011 that cost them millions of dollars.

County services have been drastically reduced. Hours-long waits for car tags and vehicle registration are the new normal.

“At this point there are no winners, not even those benefiting from the reduction of their taxes,” said Chriss Doss, a county commissioner from 1975 until 1987. “Jefferson County has a lot of potential. But it is hamstrung by the situation that now exists.”

Detractors long have called the tax an unfair burden on workers. Many among the 42 percent of workers who commute from outside Jefferson County have called it taxation without representation.

Tax opponents say the revenue loss has forced county officials to address the runaway spending that the tax enabled for prior commissioners.

State Rep. Arthur Payne, R-Trussville, points to the $360,000 discretionary fund each commissioner controlled in the late 1990s and early 2000s, at a time when the county commission was asking legislators to double the occupational tax rate.

“The legislature never wanted the tax enacted in the first place,” said Payne, an opponent of the tax throughout his 34-year legislative career. “I’m glad the tax is gone. We don’t need it back. I think the county will be better off without it.”
Diminishing returns
The county occupational tax generated nearly $253 million between when the Edwards suit was filed on May 11, 2007, and when collections ended for good on March 16, 2011, as a result of the Weissman case, the News analysis showed.

But Jefferson County only was able to keep 78 percent of the tax revenue, some $196 million.

Workers got 16 percent of that money back in court-ordered refunds, some $40 million after deducting lawyer fees and other expenses.

Combined, the lawyers who filed the suits received about 6 percent of the tax revenue from that period.

The Edwards suit lawyers — Jim McFerrin, Sam Hill and Allen Dodd — split some $9.5 million. Clay Lowe Jr., Wilson Green and Donald Jones Jr. divided $6.4 million in the Weissman suit.

The judge in the Weissman case also set aside $525,000 in tax money to cover the refund administrator’s fee and costs.

Taxpayers also paid the county’s $3 million legal bill from the suits, the News analysis showed.

The law firm Haskell Slaughter received $1.8 million between 2007 and late 2010 in the Edwards suit.

The firm that took over, Bradley Arant Boult Cummings, was paid $705,000 for its work on the Edwards suit, bringing the county’s total legal bill to $2.5 million in that suit.

The county has paid Bradley Arant another $450,000 in the Weissman case, records show. The firm has received nearly $1.2 million total in the two suits.

The judge in the Edwards suit also ordered the county to pay the estimated $1.1 million cost of providing refunds in that case, another taxpayer expense.
Worker benefits
Taxpayers’ lawyers in both cases have said throughout the litigation that their clients are winners, too, and not just because they will receive partial refunds from taxes they paid during the county’s unsuccessful appeals.

“Basically we’re saving taxpayers approximately $70 million per year in occupational taxes they no longer pay,” said McFerrin, one of the lawyers in Edwards case.

Broken down individually, each worker’s financial windfall is modest, the News analysis showed.

The net refund for a person making an average salary in Jefferson County, roughly $46,000, was less than $115.

That taxpayer also would save nearly $210 per year — $8,400 at that wage over a 40-year career — now that the .45 percent tax on pay no longer is in effect.

But the cumulative effect of the tax savings from more than 300,000 affected workers will make a difference in the communities where they live, McFerrin said.

“When you throw $70 million into the economy it has a multiplier effect,” he said. “That is money going into the local economy that would not otherwise if the tax was still in effect.”
Warring leaders
Jefferson County’s occupational tax lived and died amid a conflict between the county commission and legislative delegation.

In 1987, commissioners asked the delegation for an occupational tax. The delegation, which controls the revenue sources the commission may tap, balked at the request, Payne said.

When the county responded by discovering and dusting off a 1967 law that would allow the commissioners to impose the tax anyway, the battle was on.

The delegation rewrote the tax law in mid-1999 in a bill that also would distribute a substantial portion of the proceeds to programs the legislators had selected across the county. The county refused to collect the tax, then beat back the rewrite law in court.

Payne and other delegation members then figured that, if they repealed the 1967 law, the county would have to go along with a second tax rewrite planned for the 2000 Regular Session.

“It was never really our intention to do away with the tax,” Payne said. “We passed the repeal bill because the county kept fighting us and we were trying to get them to pay attention.”

By 2002, judges had thrown out the repeal law and both tax rewrites, leaving the original version intact. The occupational tax seemed to have become one of life’s certainties.

Then in 2005, the Alabama Supreme Court in an unrelated case issued a ruling that threatened to breathe new life into the 1999 occupational tax repeal bill.

Commissioners vainly asked for a legislative fix. But none would come until 2009, after a virtual shutdown of county government due to the loss of the original occupational tax.

Since the 2009 replacement tax was struck down, the delegation has been unable to agree on any new revenue source. Legislators also have demanded deep county spending cuts.

Commissioners say the reductions they have made have left Jefferson County unable to meet the demands of the state’s largest county and job center. Budgets for the sheriff’s department and roads department rank last among the seven largest counties in Alabama, said David Carrington, the commission president.

Jefferson County has few revenue choices beyond an occupational tax, he said.

Most Alabama counties rely on a one-cent sales tax for money, but two-thirds of Jefferson County’s sales tax is earmarked for health care and the civic center, he said.

“In retrospect, the legislative debate on the county’s revenues, earmarks and expenditures should have happened years ago before the occupational tax was passed,” Carrington said. “Unfortunately, it didn’t.”

Without new revenue, the county’s ability to provide even basic services, much less attract new businesses, will continue to deteriorate, said Doss, the commissioner from the pre-occupational tax era.

“At this point, there is no major effort to move in a positive direction,” he said. “The longer we wait, the longer it will take to fix.”

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