BRADENTON, Fla. - Alabama's pension chief advised Jefferson County commissioners Friday to authorize their attorney to prepare to file for Chapter 9 municipal bankruptcy and use the threat of an actual filing to force the county's creditors into "serious negotiations" to resolve a sewer-debt crisis on terms more favorable for taxpayers.
David Bronner said in prepared remarks that if creditors won't settle to the satisfaction of the county, it should "allow those money-train folks who abused you to meet their maker in Chapter 9" - referring to Wall Street firms that helped the county sell $3.2 billion of debt, most of which is in troubled variable- and auction-rate securities covered by swaps that are under water.
Bronner, at a local legislative delegation meeting, for the first time publicly discussed why Jefferson County should consider bankruptcy and his plan to use pension funds to take over the ailing sewer system at a price that would mean a substantial loss to creditors.
Bronner said he was asked to look into the problem by Gov. Bob Riley.
"The governor prefers a hybrid plan that makes JPMorgan, bond issuers, and consultants who received millions in fees and created this problem to help pay for it. Not the taxpayers," Bronner said. "Clearly, it makes no sense to create a problem and get paid millions for it, and then at the same time suggest a solution that allows the same culprits to get paid again and again at the expense of taxpayers."
The county's financial advisers have proposed refinancing the sewer debt with new bonds backed by various revenue streams, a plan that could mean higher sewer rates and possibly new taxes.
Bronner said a "cloud" of corruption hangs over the sewer system, with 21 individuals and companies that have pleaded guilty or been convicted of crimes associated with contractors and kickbacks. He said there is a "high probability that more convictions will come over the next months and years." The Securities and Exchange Commission is investigating the county's bond and swap deals, and a federal grand jury has begun taking testimony from officials involved in those deals.
"We have all heard of Orange County, Calif. They did about the same thing that Jefferson County did to get into trouble," Bronner said. "Orange County filed Chapter 9. Was their credit impaired? No."
Orange County's bankruptcy filing in 1994 was related to risky investments that went south. Experts familiar with that case point out that Orange County paid all its debt.
"Chapter 9 is the best and most misunderstood gift given to the states by our federal government after the Great Depression," Bronner said. "Over 500 cities, counties, etc., have used it. It allows our citizens to avoid taxpayer abuse as a result of mismanagement and corruption. Once filed, nothing noticeable happens."
Bronner went on to say that Chapter 9 would force the "money-train folks into paying for their deeds," citing the fact that Orange County received a legal settlement from Merrill Lynch & Co., the primary broker for the county's risky investments. Four years after Orange County filed for bankruptcy, Merrill agreed to pay the county $400 million to end a lawsuit.
Bronner said if Jefferson County files bankruptcy, he would back the county sewer system with funds from the Retirement Systems of Alabama based on an anticipated return of 9.12% for the RSA. He did not specify the amount he would pay for the system.
The plan as previously outlined by Bronner also calls for repudiation of some of the system's debt
State Rep. Roderick Scott, a Democrat from the city of Fairfield in Jefferson County who attended Friday's meeting, said he remained opposed to bankruptcy but he would not be opposed to Bronner's idea of using the threat of bankruptcy to "force" creditors to sit at the table in order to stop interest penalties from occurring.
The county has entered into forbearance agreements to forestall payments owed to creditors.