BRADENTON, Fla. - The Bank of New York Mellon said in a court filing late Monday that it would file suit in Alabama state court to push for a receiver for Jefferson County's sewer system, which is plagued by more than $3.2 billion of troubled variable- and auction-rate debt.
Pursuit of a receiver had been the object of a joint filing in federal court by plaintiffs, including the bank as well as bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co. That action was met with a counterclaim by attorneys for Jefferson County. The plaintiffs and Jefferson County disagreed on how the federal case before Judge David Proctor should proceed.
Proctor ruled two weeks ago that he could not appoint a receiver with rate-making power because the federal code prohibits federal courts from taking actions that affect the rates of utilities organized under state laws. Proctor suggested the case could proceed in state court, and ordered both sides to submit a joint response by Monday because in addition to plaintiffs seeking a receiver, Jefferson County filed counterclaims that still must be adjudicated.
In an 11-page filing, Syncora and FGIC, which insure most of the troubled sewer debt, said that the trustee would seek a remedy in state court but that the insurers would not be parties to that suit. They also asked Proctor to stay the case involving the county's counterclaims.
Attorneys for Jefferson County said the entire federal case is counterproductive and that it has distracted the county from focusing on broader efforts to resolve the sewer crisis. The appropriate course of action, the county said, would be a stay "with no further proceedings at this time in either state or federal court."
"The county intends to proceed with its counterclaims against the bond insurers and is prepared to do so in this court," attorneys for the county said. "The county disagrees with plaintiffs' statement that the counterclaims are unrelated to the receivership and other claims alleged in the plaintiffs' complaint."
In its counterclaims, Jefferson County alleged that the bond insurers' conduct and loss of credit ratings caused the failure of auctions, the tender of its variable-rate demand warrants, and "massive increases in interest expense and accelerations of principal that led to the current crisis."
The county asked Proctor to hold a scheduling conference to determine how its counterclaim suit would be readied for trial.
It was not immediately clear when the judge would respond to the joint filing, or when Bank of New York Mellon would file suit in state court.
Meanwhile, county commissioners yesterday voted to cut the current budget by $31.7 million, in addition to cuts earlier this month totaling $38 million, the Birmingham News reported.
Recent budget cuts have nothing to do with the financial crisis surrounding the sewer system. The cuts have been required because a local judge earlier this year struck down an occupational tax that provides one-third of the revenue for the general fund budget. While the ruling has been appealed to the Alabama Supreme Court the county cannot spent occupational tax collections.
Some state lawmakers representing Jefferson County reportedly have met to work on legislation that would reauthorize the tax. Gov. Bob Riley has said he would call a special session of the Legislature to approve a new occupational tax bill only if lawmakers are in agreement before the session begins.
In addition to the newest financial crisis caused by losing the occupational tax, Jefferson County's sheriff yesterday threatened to file legal action against commissioners to stop them from imposing layoffs and further funding cutbacks to his office.