Jefferson County approves settlement with wastewater-related creditors, attempts to avoid bankruptcy
Jefferson County Commissioners have approved a conceptual settlement in their efforts to address the County's wastewater debt crisis and avoid the largest municipal bankruptcy in U.S. history...
BIRMINGHAM, AL, Sept. 20, 2011 -- Jefferson County Commissioners have approved a conceptual settlement in their efforts to address the County's wastewater debt crisis and avoid the largest municipal bankruptcy in U.S. history.
Much of the County's financial trouble began in 1997 when it undertook a massive sewer repair project in response to a 1996 consent decree. The County borrowed heavily to finance the project and attempted to restructure those loans in 2002-2003. What resulted was a complex refinancing scheme comprising auction-rate securities, variable-rate bonds and embedded interest rate swaps -- a combination that proved disastrous for the County's financial stability when the banking crisis hit in 2008. By 2009, Jefferson County had accumulated $3.14 billion in sewer debt.
In October 2009, former Birmingham mayor Larry Langford was convicted of accepting bribes and luxury items in exchange for funneling several millions of dollars in bond business to investment banker Bill Blount while he (Langford) served as president of the Jefferson County Commission. Blount and lobbyist Al LaPierre both pleaded guilty in the case and testified against Langford.
The sewer debt and cloud of corruption were not the County's only issues: Compounding the trouble was an on-again-off-again occupational tax that was ultimately ruled illegal in 2009 and not replaced, depriving the County of tens of millions of dollars in revenue.
For the past three years, the threat of bankruptcy has been looming and several attempts have been made to settle with creditors but to no avail.
However, on September 16, the Commission voted to accept a settlement that will restructure and refinance the County's $3.14 billion tab. Terms of the settlement include:
• A reduction of the sewer debt by more than $1 billion due to concessions from the creditors. The term sheet calls for refinancing approximately $2.05 billion in debt. Refinancing would be completed by June 30, 2012.
• Based on the term sheet, the maximum increase in residential sewer rates will be 8.2% annually over the next three years with 3.25% increases projected after the first three years. The average monthly residential wastewater bill will increase approximately $3 in the first year of the rate increase.
• Implementation of a low-income assistance program.
• Subject to approval of the State Legislature, creation of a Government Utility Service Corporation (GUSC) to manage the wastewater system once the debt is refinanced.
• Enough money to fund the next 40 years of currently projected capital improvements for the wastewater system without any additional borrowing.
Jefferson County sewer receiver John Young, Jr. said that Jefferson County Commissioners did the right thing in approving a conceptual settlement with its wastewater-related creditors allowing all parties to begin working toward a final settlement of the County's wastewater debt crisis.
"This courageous action taken by the County Commission is a critical first step toward avoiding the largest municipal bankruptcy in U.S. history and starts us down a path that allows the County to begin to lift the dark cloud that has been hanging over Jefferson County," said Young.
Not everyone is thrilled with the outcome. Democratic State Representative John W. Rogers Jr. of Birmingham has vowed to stop the deal in the state legislature if at all possible, saying that its cost would be passed on in the form of rate increases that would disproportionately impact poor areas of Birmingham.
The County is not out of the woods yet, as much remains to be done. The terms of the settlement must be completed by the County and its creditors within 45 days. This may be easier said than done: the Commissions 18-member board is reportedly divided on the legislation needed to meet the terms. Also, Jefferson County's general fund deficit of $40 million must be addressed if bankruptcy is to be avoided.