DALLAS — A Jefferson County, Ala., circuit judge on Friday gave total control over all finances of the county's sewer utility to the court-appointed receiver of the system, which is in default on more than $3 billion of revenue debt.
Johnson said Friday that his September 2010 order naming Young as the receiver for the sewer system clearly gave Young the authority to operate the system and oversee its finances. "There should be no further debate as to the receiver's sole and exclusive right and authority to control all accounts related to the system and system revenues," he said in his order.
Young said the decision was a victory for Jefferson County residents.
"The judge made it very clear that the wastewater system has the right to control and manage its revenue, invest its capital funds, and pay its bills in a way that reflects our commitment to running an efficient wastewater system in a timely and orderly way," he said.
The order includes $60 million that Young asked the county to turn over to Jeffco Receiver Funds Inc., a private corporation that would maintain the system's tax-free status while controlling its finances. Young said in a court filing that the corporation was vital to the "receiver's business judgment." He said the separate account would result in better and more transparent record keeping.
County attorney Jeff Sewell contended that the transfer of the $60 million was unconstitutional. "It ignores the Alabama Constitution's prohibition on transferring public funds to private corporations," the filing read. "It would expose county commissioners and employees to personal liability for millions of dollars, something the receiver has no power to do."
Johnson met with attorneys from both sides on July 6, and gave them 48 hours to agree on how to proceed. Johnson issued his order when no agreement was reached.
The $60 million is separate from Johnson's request for $75 million that the county received in a 2009 agreement between JPMorgan and the Securities and Exchange Commission. The settlement resolved securities fraud and other charges involving the county's troubled variable- and auction-rate sewer warrants and related interest-rate swaps.
The dispute over the $75 million was put on hold in late June when the county agreed not to file for bankruptcy for at least 30 days. In return Young agreed to suspend a proposed 25% rate increase and to resume negotiations with creditors over the $3.2 billion of defaulted sewer debt.
Alabama finance director David Perry told the Birmingham News June 29 that the state was considering how to provide credit enhancement for the county's sewer bonds. He said that could include bond insurance, lines of credit, or an independent public corporation that would own and operate the wastewater utility.
