BRADENTON, Fla. Jefferson County filed a motion Friday seeking to appeal a ruling that could threaten the security of investors who purchased $1.8 billion of 40-year refunding sewer warrants last December.
The ruling by U.S. District Judge Sharon Blackburn questions the constitutionality of a key piece of the county’s bankruptcy plan, which allows the court to enforce sewer rate increases promised by the county to service the debt as long as it is outstanding.
If Blackburn agrees to certify her Sept. 30 ruling, Jefferson County will immediately file an appeal with the 11th Circuit Court of Appeals in Atlanta, said a joint statement by county commissioners David Carrington and Jimmie Stephens.
“The county’s appeal would challenge the power of the district court to invalidate the portion of the plan of adjustment under which the bankruptcy court retains jurisdiction to enforce the county’s compliance with its sewer rate covenant throughout the term of the new sewer warrants,” the commissioners said.
“Regardless of the outcome of the county’s request to appeal last week’s ruling, and regardless of any ultimate ruling on the merits of the appeal before the district court, we fully intend to comply with the obligations undertaken by the county when it issued the new sewer warrants, including the rate structure that was adopted by the County Commission,” said the statement.
Blackburn’s decision was the result of a series of motions that were filed regarding three appeals of the county’s bankruptcy plan brought by a group of local residents and elected officials who are ratepayers of the county’s sewer system.
One of the ratepayers’ appeals challenges the bankruptcy judge’s confirmation order and argues that the ability of the court to retain jurisdiction over sewer rates is unconstitutional.
The county sought dismissal of that appeal, which Blackburn denied.
Blackburn’s ruling said that the county had already issued new sewer warrants to retire the outstanding debt, and that some parts of the bankruptcy plan “may be impossible to reverse,” but she would consider the constitutionality of the plan that cedes the county’s future authority to set sewer rates to the bankruptcy court.
County attorneys argued in Friday’s motion that no federal court can strike down a provision of a Chapter 9 plan of adjustment or a confirmation order “without the debtor’s consent.”
The attorneys want the 11th Circuit Court of Appeals to determine if the plan of adjustment can be changed without the county’s consent, they said.
If the appellate court determines that Blackburn doesn’t have the authority to strike down a portion the plan that could lead to early termination of one appeal before Blackburn, attorneys said.
At the time the warrants were sold late last year, analysts and attorneys said they believed a provision allowing the court to retain jurisdiction had never had been used in a municipal bankruptcy case before.
Jefferson County filed for Chapter 9 bankruptcy in November 2011 citing a total of $4.1 billion in long-term debt, which now stands as the second-largest municipal bankruptcy behind Detroit.
Of that debt, $3.2 billion was for outstanding, defaulted sewer warrants that were written down as part of the sale of new warrants in the exit plan. U.S. Bankruptcy Judge Thomas Bennett confirmed the county’s plan of adjustment on Nov. 22.
