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Jefferson County Morass Gets Deeper

BRADENTON, Fla. — Alabama Gov. Bob Riley said yesterday that he could not legally declare an emergency in Jefferson County as requested by officials there who say they need the state’s help to cope with an increasingly dire financial situation created by the loss of a major source of revenue for the county’s general fund.

At the same time insurers of the county’s troubled sewer debt have threatened to sue the county for more than $700 million in past and future muni insurance claim payments they expect to make to investors. The insurers have alleged in a legal notice that Jefferson County fraudulently obtained bond insurance for its 2003 sewer refunding deals by failing to disclose critical financial information.

Alabama’s most populous county is expected to deplete its general fund of cash early next month leaving it unable to pay most of its 3,600 employees and to adequately staff facilities such as the county jail and other vital services, Jefferson County Commission President Bettye Fine Collins wrote to the governor on Wednesday.

Collins said the situation would “jeopardize public health, safety, and welfare of the citizens of Jefferson County,” and requested that the governor proclaim a state of emergency and provide state assistance.

Riley’s communications director, Jeff Emerson, said yesterday that an emergency declaration is not “a legal option the governor can take.

“If there comes a point where the county needs help from state troopers or other state agencies, that’s something the governor can do if it’s absolutely necessary,” he said. “But the law allowing governors to declare states of emergency is intended for natural or man-made disasters, not financial problems.

In January, a local judge struck down an occupational tax that provides one third of the general fund revenues. While the county is appealing the ruling to the Alabama Supreme Court, local lawmakers are working on a bill that would reauthorize the tax, but it is not likely to be approved before the government runs out of money.

A recent disclosure by Syncora Guarantee Inc. stated that on April 15 Syncora and Financial Guaranty Insurance Co. filed a notice of claim indicating their intention to sue the county for fraud.

The insurers, who issued policies covering $2.8 billion of sewer warrants, allege that Jefferson County concealed detrimental consultant’s reports by the engineering firm Paul B. Krebs and Associates Inc. in 2003 from the insurers, rating agencies, and investors before the sewer refunding warrants were sold.

“This concealment was important because the 2003 Krebs report said that the county needed an 89% sewer revenue increase to meet its future obligations,” the insurers’ claim notice states.

The insurers said they were “entirely unaware” of the documents until the county produced them in “a mass of materials” submitted by the county in pretrial discovery proceedings last October after Syncora, FGIC, and sewer bond trustee Bank of New York Mellon filed a federal lawsuit seeking a receiver for the county’s sewer system.

Federal Judge David Proctor ruled in the case that the federal code prohibited him from taking actions affecting the rates of utilities organized under state laws. But he said: “Evidence before the court suggests that the county suppressed the 2003 Krebs Report and took little (if any) steps to generate the additional revenues which would be required to meet the looming sewer debt crisis.”

Neither the insurers nor the county have commented about the pending case.

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