BRADENTON, Fla. — The Jefferson County sewer default saga isn’t over, even after county commissioners announced a settlement agreement last month with creditors who hold more than $3 billion in defaulted sewer warrants.
Alabama legislators were not at the negotiating table, though the settlement requires action on their end. And lawmakers representing Jefferson County remain in disagreement over how or if they can help the county avoid filing the largest municipal bankruptcy in U.S. history.
It’s not the first time local lawmakers have resisted helping the county resolve its $3.14 billion sewer debt crisis or to replace a lost source of funding for its general fund. That, in itself, could thrust the government into bankruptcy by the end of the year.
The county’s problems could worsen soon.
The Birmingham City Council Tuesday said it would consider filing a lawsuit in an effort to stop what it called “unjust” sewer rate increases. Birmingham is the county seat, and a large proportion of city residents are on the county-owned sewer system.
In the past few weeks, county commissioners have met with members of the local legislative delegation several times to discuss avenues to accomplish a sewer restructuring deal and to cure the county’s pending general fund deficit.
There is no consensus among the lawmakers about whether they will even assist the county with either problem.
A special session of the Legislature in November is not expected to be called because of the continuing dissension, according to Gov. Robert Bentley.
Last month, county commissioners approved the terms of a restructuring agreement with creditors, which outlined concessions and a series of sewer rate hikes to support the restructuring of the defaulted debt.
Those terms were the basis for preparing a more detailed agreement that was to be signed by the county and creditors in mid-October.
The first sewer rate increase, to be implemented next month, now has been delayed until December.
The delay in raising sewer rates is due to the fact that the comprehensive agreement has not been completed or signed by all creditors, said Commissioner Jimmie Stephens, who heads up the board’s finance committee.
“No one has balked or shied away from the [sewer restructuring] arrangements,” Stephens said, adding that it is taking longer to prepare the complex paperwork and obtain signatures. “I’m thinking now that by the end of October we should have something definitive from the creditors.”
Once creditors sign the paperwork, the County Commission must also approve it, according to the resolution they passed Sept. 16 accepting the terms of the restructuring agreement.
The term sheet included concessions of $1.09 billion from creditors in return for refinancing $2.05 billion of sewer warrants into 40-year debt.
To lower interest rates, the settlement agreement called for a portion of the debt to be sold with insurance and a portion with a moral obligation pledge from the state of Alabama, requiring approval from state lawmakers.
Lawmakers must also approve the creation of an independent public corporation to take over management and financing of the sewer system.
The deal required three annual sewer rate increases of 8.2% starting this November, and 3.25% hikes each year starting in 2014.
The proposed conditions for settling the sewer debt crisis also recognized that the looming deficit in Jefferson County’s general fund must also be resolved.
Stephens said the local legislative delegation is divided on a solution even though the county is currently advertising a number of bills in hopes of giving lawmakers choices for dealing with the problems.
“Each legislator has his or her own agenda,” he said. “The challenge for us is to try to coordinate those agendas to reach consensus to move forward with some type of settlement.”
“Most of the disagreement falls upon party lines with the Democrats unwillingness to raise taxes and Republicans unwilling to un-earmark funds,” Stephens continued. “With the Jefferson County delegation split 9-to-9 it leaves little room for consensus.”
There also appears to be little concern from some delegation members about how a bankruptcy eclipsing that of Orange County, Calif., might impact the rest of the state, he added.
Though the settlement terms call for closing on the sale of restructuring bonds by June 30, 2012, Stephens said that without a resolution to the budget deficit of up to $50 million, the county could be forced to file for bankruptcy or make drastic budget cuts.
“There’s not enough liquidity in the general fund budget to last until next year, so this will be resolved sooner rather than later,” he said.
Local legislators have refused to assist Jefferson County in the past with a replacement for the occupational tax, which was struck down by Alabama courts as being unconstitutionally imposed by lawmakers, triggering Jefferson’s general fund deficit crisis.
They also refused to consider a sewer settlement negotiated by former Gov. Bob Riley.
The Birmingham City Council earlier this week delayed action on a resolution calling the proposed sewer-rate increases “excessive, imbalanced, and punitive” because many of the city’s residents affected are on the sewer system, and a large number of them are poor.
Councilor Jay Roberson sponsored the resolution, which called on state legislators to solve the financial crisis and protect ratepayers, though it did not cite specific actions to be taken.
During a council meeting, Roberson said lawmakers should approve a new occupational tax and business license, noting that there are now businesses in unincorporated Jefferson County that do not pay licensing fees.
The county should be given home rule, said Councilor Carole Smitherman.
Alabama counties do not have home rule and depend on the Legislature for authorization to raise taxes and fees.
In the past, local lawmakers have also earmarked some of Jefferson County’s taxes and fees for certain expenditures, which reducing budgeting flexibility.
Implementing a new occupational tax and granting partial home rule are among the bills that the county is advertising for lawmakers to consider.
Though many residents have urged Jefferson County to file for bankruptcy, Birmingham Councilor Lashunda Scales said the debt will not go away even if that occurs.
“The public has to be made aware that this debt has to be paid some way,” she said. “Services have been rendered. We still owe the money.”
The council delayed action on the resolution and decided to hold a special meeting Thursday with attorneys to discuss strategies and specific actions that the city will take, including a potential lawsuit.
Jefferson County overleveraged its sewer system when it refinanced outstanding bonds to delay rate increases in 2002 and 2003. Much of the debt was sold to improve the sewer system under a consent order.
Most of the sewer warrants were sold as variable- and auction-rate debt with associated swaps. Those warrants failed during the credit crisis and were downgraded to junk. The county has since defaulted on much of the debt.
