BRADENTON, Fla. - With Jefferson County, Ala., facing intense scrutiny from investors, rating agencies, and the media, County Commission President Bettye Fine Collins yesterday
Collins at a news conference said she will ask fellow county commissioners to seek permission from the state Legislature to apply excess revenues from a local one-cent sales tax toward the county's sewer debt service payments. Those costs soared after bond insurance company downgrades sent interest rates skyrocketing. Nearly all of the county's sewer program debt is in auction- and variable-rate securities.
"The extra amount is what we expect to propose to Wall Street in return for a complete resolution of the problem," said Collins, referring to the use of sales tax revenue. "The risk to Wall Street is that the extra revenue we propose to commit may not pay them off in full."
The sales tax currently secures $1 billion of bonds the county sold in 2004 and 2005 to fund local school capital needs. Collins said that debt would be paid first. But the sales tax generates excess funds that could be applied to the sewer system debt.
Last week, Standard & Poor's slashed the county's sewer debt rating to CCC from B. The agency also cut most of the county's other ratings and placed them on credit watch negative out of concern that it might seek protection through bankruptcy. Moody's Investors Servicelowered its rating to B3 from Baa and put the county's other credit ratings on review for possible downgrade out of similar concern.
Those actions came after the county filed a material event notice stating that it would not post collateral or insurance to prevent the termination of 13 swaps, which cover a notional amount of $5.4 billion in debt.
The county also is facing accelerated payments of its variable-rate demand warrants because of insurance downgrades.
Collins said the county expects to propose the new sales tax revenues to the holders of the sewer debt as part of a comprehensive solution. At present, she said the holders of the sewer debt can only collect from the net operating revenues of the sewer system. With the current sewer rates, the sewer system generates net revenues of about $138 million a year.
"The current disruptions in the financial market have sent our debt service costs soaring," Collins said. "Without the restructuring of the debt, these payments could increase to $250 million a year or more."
Jefferson County's sewer and swap program has been the subject of investigation by the Securities and Exchange Commission for several years now and a number of elected officials and local contractors have been convicted of corruption related to the massive sewer system, which is undergoing repair and replacement under a federal court order.
Collins said yesterday that the county is limited in providing more details about its proposal because it has "not been accepted by anyone and is still subject to negotiation."
