BRADENTON, Fla. — An Alabama judge said Wednesday that bankruptcy is not a feasible alternative for Jefferson County and appointed a receiver with rate-setting powers to take over the county’s sewer system.
The receiver and enforcement of bond covenants was sought in Jefferson County Circuit Court by the Bank of New York Mellon, the trustee for nearly $3.2 billion of variable- and auction-rate sewer warrants.
“The court finds that a receiver will be able to stabilize the system finances and will also be able to implement significant operational improvements and efficiencies that will generate more system revenues and more net revenues available for debt service than [Jefferson County] previously produced,” the judge’s order said.
Johnson said bankruptcy is not a feasible option if the county wants access to the capital markets.
“Capital markets abhor default and demand payment,” Johnson’s ruling said. “Consequently, it is important for the plaintiff to be made whole or as nearly so as reasonably possible.”
Johnson awarded BNY Mellon $515.9 million with payments coming from sewer system revenues monthly.
In appointing John Young as receiver for the county’s sewer system, Johnson said “hikes in sewer usage rates must be reasonable and carefully implemented so as not to result in decreased demand for sewer services.”
Young, who has more than 32 years of experience in water and sewer utility engineering, operations, and management, is chief water technology officer and president of New Jersey-based American Water Works Service Co. He will be leaving his job at American Water to perform his duties as receiver, a company spokeswoman said.
In November 2008, Young was one of two special masters appointed by a federal court judge to study Jefferson County’s sewer system and make recommendations about how to improve revenues. Young evaluated operations and business aspects of the sewer system, including its rate structure.
“We are pleased with the court’s decision to appoint Mr. Young who has a strong understanding of the issues involved and is well-positioned to help drive long-term improvement in the Jefferson County sewer system’s finances,” said BNY Mellon spokesman Kevin Heine.
Jefferson County Commission president Bettye Fine Collins said late Wednesday that attorneys for the county would study the judge’s order and report to the commission in the near future.
Collins said she hoped Young would “consider the economic constraints” on sewer system customers.
In his ruling Wednesday, Johnson said the trustee has a first priority lien on all funds of the sewer system and that the bond indenture for the sewer warrants is valid and enforceable under Alabama law.
“The county has failed to abide by the terms of the indenture and has failed to operate the sewer system in an economical, efficient, and proper manner and the public interest and the ends of justice will be best served by the appointment of a receiver,” the judge said.
Young, as receiver, was given “full power and authority to effectively administer, operate, and protect the system” subject to federal consent decrees the county previously entered for violations of the Clean Water Act.
Young’s powers include the sole and exclusive right to implement operational efficiencies and revenue enhancement programs, fix and charge rates and fees sufficient to pay for the parity securities and any other outstanding obligations, terminate or modify any existing written or oral contract of the county, enter contracts on behalf of the county, investigate prior expenditures, hire and fire staff, and engage professionals that can include America Water Works Co.
Young will be paid $500 an hour with each work day not to exceed 10 hours. His out-of-pocket expenses will be paid, including local room and board and transportation to and from his primary residence. Young currently resides in Voorhees, N.J. Young also was ordered to post a $100,000 bond to be paid from sewer system revenues.
About the only thing Young cannot do is sell the system or any asset of the system without the judge’s approval.
