BRADENTON, Fla. — The federal judge in Jefferson County’s bankruptcy said Monday that he is inclined not to remove the Alabama state court-appointed receiver of the county’s sewer system, though he is expected to decide whether to limit the receiver’s rate-setting powers.
The hearing in U.S. Bankruptcy Court in Birmingham will determine the extent of the authority held by John Young, a receiver appointed late last year to take charge of the county’s sewer system and set its rates after the county defaulted on more than $3 billion of sewer warrants and failed to implement rate increases as promised to investors.
Judge Thomas Bennett said the hearing, originally set to last one day, would resume Tuesday. He also set aside Wednesday to hear arguments, if needed.
Much of the testimony Monday came from County Commission President David Carrington and Young.
Carrington said the commission wants to place the sewer system’s administration in the hands of newly hired county manager Tony Petelos, who began the job Oct. 3.
Petelos is the former mayor of the nearby city of Hoover and a former state legislator.
Mismanagement and corruption under previous County Commissions was responsible for the problems now facing the sewer system, Carrington said, adding that the current commission is committed to resolving them.
A rate study would be necessary before determining whether any increases would be enacted, Carrington said. He also said he believed that the receiver’s expenses have reduced the system’s profitability.
Young, the former president of New Jersey-based American Water Works Service Co. and now a shareholder, said during testimony that problems began long before Jefferson County signed a consent order agreeing to assume responsibility for 2,000 miles of pipes owned by 21 municipal sewer systems and integrate them into Jefferson’s system.
None of the cities paid the county for assuming their systems, he said.
When Young took over as receiver, he said the county had no business plan for the sewer system and relied on overly optimistic use projections and rate hikes that were never implemented.
Additionally, he found hundreds of customers were not billed for sewer service, and that those who did not pay their bills were not cut off.
Young cited a series of more recent missteps by Jefferson County, including operating and budgeting errors as well as ignoring consultants’ reports.
County attorneys initially focused their questioning of Young on his salary and bills for consultants, including $200,000 paid to American Water.
In other rulings Monday, Bennett said insurers of the county’s sewer warrants — Financial Guaranty Insurance Corp., Assured Guaranty Municipal Corp. and Syncora Guarantee Inc. — could file written motions in the case.
FGIC said in court documents that it insures $1.624 billion of outstanding JeffCo sewer warrants, owns $101.46 million of the defaulted debt, and has paid $3.3 million in claims.
Assured said it has a net exposure of $731.8 million to the county’s debt, which includes $135.2 million of insurance and debt-service reserve policies for the sewer warrants, and that it has paid claims of $35 million on sewer debt payments.
Syncora said it insures $1.139 billion of sewer warrants, in addition to surety policies.
The insurer made an undisclosed amount of claims payments and said it acquired $184 million of the warrants from liquidity banks.
Alabama’s largest county filed a Chapter 9 petition on Nov. 9 after failing to reach a restructuring agreement with creditors over $3.14 billion of defaulted variable- and auction-rate sewer warrants.
The action also placed $1.1 billion of Jefferson County’s general and limited-obligation warrants into bankruptcy.