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Scrambling Continues In Alabama

BIRMINGHAM, Ala. - Jefferson County yesterday was scrambling to get the governor's office to schedule a special session of the Alabama Legislature before Aug. 8 to consider a restructuring plan for the county's troubled sewer debt as it also worked to finalize yet another forbearance agreement with creditors.

County officials and their negotiating team are "working at a breakneck pace to prevent" defaulting on payments that would be due if the forbearance agreements are not extended, said Jefferson County Commissioner George Bowman, who is working closely with the negotiators. The agreements are due to expire today.

Sensitive talks have been under way to obtain a fourth extension of forbearance agreements with banks and swap counterparties, while the county works toward a restructuring of the sewer system's $3.2 billion of outstanding debt, most of which is in troubled or failed variable- and auction-rate securities covered by out-of-synch swaps.

Meanwhile, discussions have been taking place to assure Gov. Bob Riley that the county, which includes Birmingham, has a "sound" restructuring plan that will work and to obtain the governor's commitment that he will call a special legislative session, Bowman said.

Riley's office did not return a phone call seeking comment by press time yesterday.

"Right now there are certain conditions," Bowman said, referring to the success of forbearance negotiations. "And one of those is the governor calling a special session. That's one of the conditions on the table."

The county will need to move quickly even if all goes according to plan. First, the County Commission may vote on the proposed restructuring plan. Second, the Legislature may be called into session with little notice.

"We're hoping for a positive outcome," Bowman said. "We've put too much work in this to stop at the 11th hour."

All this would lead up to the County Commission's first public hearing Aug. 8 on the proposal to deal with the sewer debt crisis and to explain to local residents what Jefferson would face if it placed the sewer system into bankruptcy.

David Bronner, chief executive officer of Retirement Systems of Alabama, last week suggested that the county put the sewer system in bankruptcy so he can use pension funds to purchase it for less than the cost of the outstanding debt.

In unveiling the proposal, Bronner reportedly told the Birmingham News that taxpayers shouldn't bail out a sewer system beset by "mismanagement and corruption." Those who profited "should pay to bail out the system," he said.

A number of former elected officials and county employees involved with the sewer system have been found guilty of corruption. And there are federal investigations into some aspects of the system's financing.

Bronner's remarks have stimulated public discussion about a possible bankruptcy, and Jefferson County Commission President Bettye Fine Collins reacted by announcing that a public hearing would be held Aug. 8. Collins, a real estate broker, has repeatedly said bankruptcy would be disastrous.

Collins also said that Bronner will be invited to present his plan at the public hearing so that all positions can be aired.

Citi- one of the county's three underwriters - will present the current restructuring proposal. There also will be a presentation on bankruptcy, Collins said.

"It's an attempt to get away from the sensationalism and the press that the Bronner plan evoked and really get to the brass tacks of where we are," Bowman said when asked about the necessity of the public hearing. "I'm sure it will come out in the wash why [Bronner's] plan is not feasible."

Bowman noted that the county has economic development plans that involve future financing needs.

"We cannot declare bankruptcy and follow the Bronner plan and then come back to the bond market and obtain more financing," Bowman said. "We would sabotage our future for a monetary gain in his bottom line."

Bowman said Jefferson is on course to solve its problem with a "measured approach" that will enable the county to pay its bills and obligations and help "those least able to afford increased rates."

The latest proposed restructuring plan is complex and has many moving parts still subject to negotiation. But a major component included out of concern for local residents is that it avoids increasing sewer rates for the first three years while planning for annual increases between 1% and 2% through 2048.

The proposed plan has three main parts.

First, a currently dedicated school sales tax would be used to retire outstanding school warrants. Under the proposed structure, the county would issue $1.48 billion of current interest bonds and $383 million of capital appreciation bonds to refund the school warrants and provide $663 million to retire a portion of the outstanding sewer warrants.

Legislative approval would be required to allow Jefferson County to use the sales tax for the sewer debt because currently the law only allows the tax to be used for educational needs. Lawmakers also would be asked to approve a backstop provision that allows for automatic increases in the sales tax in increments of 1/10th of 1%, with a cap of five increases, if bond covenants are not met.

Second, an existing occupational tax would need legislative approval to repeal exemptions for professionals such as doctors, lawyers, architects, and accountants. The resulting uniform occupational tax would bring in enough revenue to support approximately $506 million of current interest bonds and $131 million of current interest bonds to refund approximately $568 million of sewer warrants.

Third, an existing sewer system property tax, currently levied at 0.7 mils, would be increased to 3.3 mils to support $1.92 billion of CIBs and $399 million of CABs to refund $2.02 billion of sewer warrants.

The property tax increase would have to be approved by amending the state's constitution in a statewide referendum. To be voted on in November, it must be placed on the ballot by Sept. 15. This provision also would include a constitutional backstop of automatic ad valorem tax rate increases if covenants are not met.

The proposed plan was said to have been well received by Wall Street creditors last week.

It has several revenue streams that can be adjusted as negotiations continue, and changes most likely will be forthcoming as the proposed plan goes before elected officials, Bowman said.

In Birmingham this week there were signs that tensions are high over a long-awaited resolution to the county's sewer debt crisis. Given daily local press coverage, some residents said they are weary of hearing about the "what ifs" and fearful about what it all means for them financially.

"Why should I have to pay for the sewer system when I'm not on it?" a local resident asked.

Another resident said she hoped millions in fines assessed in the corruption cases are returned to the sewer system.

In a related development, Bowman said yesterday that discussion about adding new members to the county's underwriting team is now expected to take place Tuesday, instead of today.

Earlier this week at a County Commission meeting, he proposed adding Grigsby & AssociatesInc., Kipling Jones & Co., and SBK-Brooks InvestmentCorp. to the current team of Citi, Sterne Agee & LeachInc., and Morgan Keegan & Co.

Bowman said yesterday that he wanted to deal with the forbearance agreement extensions and other details pertaining to the sewer crisis before pursuing additions to the underwriting team. A forbearance agreement would delay once again about $100 million in payments related to sewer debt that the county owes creditors but says it cannot afford to pay.

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