BRADENTON, Fla. - Alabama Sen. Scott Beason is shepherding a bipartisan group of lawmakers hoping to move legislation forward that would resolve the financial crisis surrounding Jefferson County's troubled sewer system.
The effort to get lawmakers to take action has been evolving quietly since last fall in a politically sensitive process, Beason, a Republican from Gardendale, said in an interview Friday. His group has met a number of times with fellow lawmakers and most recently with representatives of the county.
"We're working with [the county's representatives] talking about the legislation that is being proposed, working out details to make them more comfortable with it," he said. Beason's district includes Jefferson, the state's largest county. Birmingham is the county seat.
The county is saddled with billions of dollars of debt issued to rebuild its sewer system that it is struggling to pay. Debt service has skyrocketed as the county's interest costs shot higher following downgrades of the bonds' insurers.
County officials and Gov. Bob Riley have been trying to restructure the debt without dramatically increasing sewer rates. But creditors, including the bond insurers, want the county to raise sewer rates and use sales tax revenue currently dedicated to schools to back any debt restructuring.
Meanwhile, the county has entered into forbearance agreements with creditors delaying some payments owed on the sewer debt and associated interest rate swaps.
Draft legislation that would allow sales tax revenue to be used is now being circulated among lawmakers - most importantly the large group that makes up Jefferson County's delegation, whose approval is necessary to get the bill before the full House and Senate, Beason said.
As currently proposed, the bill would enable the county to pay off its school construction warrants and consolidate some sewer debt using proceeds from a locally collected one-cent sales tax. It would also establish an oversight board for the sewer system and a state authority to issue new sewer debt for Jefferson County.
Beason said legislation could be filed next week or the week after. He also said discussions are under way about how to move the effort forward to gain political support - as well as the support of local residents - in a process that is open and transparent, including scheduling public hearings so people can have input on the ultimate solution.
"Alabama is one of the places where secrecy has reigned for years and years and years," said Beason, a businessman who is serving his first term in the Senate after two consecutive terms as a state representative. "I think that's coming to an end."
Whether that progress will be good enough for a federal judge remains to be seen.
A hearing is scheduled to begin in Birmingham on a request from the county's bond insurers and the trustee for the bonds to appoint a receiver for the sewer system. They say the county has failed to take the necessary actions, including raising revenues and rates, to support the system's $3.2 billion of outstanding debt.
Jefferson County officials have said in their response to the receivership suit that it could force them into the nation's largest-ever municipal bankruptcy.
Currently, such a drastic step would be supported by two of Jefferson County's five commissioners and by many local residents weary over the more than year-long battle to restructure the debt, which is mostly in auction-rate and variable-rate mode.
Bankruptcy is something that Beason openly rejected in a letter that he and Rep. Rod Scott, D-Fairfield, published March 1 in the Birmingham News. Scott, whose district includes Jefferson County, could not be reached for comment.
"Our big challenge has been that the bankruptcy cry was so powerful for so long, it came from the public and from inside the county commission," Beason said. "I just personally feel ... that it's better to solve the problem in the daylight than in the dark room of bankruptcy."
Some lawmakers apparently are concerned about the potential benefits - and problems - associated with bankruptcy under Chapter 9 of the federal bankruptcy code, because many people believe it would be possible for Jefferson County to discharge some or most of the sewer debt.
In an apparent attempt to resolve questions about how much, if any, debt can be discharged in a municipal bankruptcy, Sen. Steve French, R-Birmingham, recently distributed to lawmakers a white paper on bankruptcy. The paper was written by Samford University law professor Howard Walthall at the request of the Alabama State Bar.
Walthall describes the bankruptcy process and complex requirements for the discharge of debt through a "fair and equitable plan" that must be acceptable to the court, which is where uncertainty lies, according to French.
Based on the paper, French urged lawmakers to "evaluate the perils of the county petitioning for bankruptcy in federal court." He also said it would be better for the county to negotiate a restructuring of the sewer debt, since those negotiations now include more than $1 billion of concessions.
Additionally, Beason believes that if lawmakers don't act to assist Jefferson County there will be greater repercussions for the rest of the state.
"I think the problem is that bond buyers and the financial markets will look on this as Alabama not meeting [its] obligations, and this will not be isolated and focused on Jefferson County," Beason said. "They will want to know why Alabama didn't ensure there was oversight of Jefferson County. I think it will cost more in interest rates and fees all over the state in the long run. My position is we have to pay the bill one way or another."
Meanwhile, the Legislature has unanimously passed legislation strengthening bond issuance disclosure requirements for Alabama counties as a result of the situation in Jefferson County.
The legislation requires all Alabama counties to file a "bond financing review form" with state auditors. County officials must acknowledge that they considered relevant factors important to the decision of entering into bonded indebtedness, including derivatives, and they must disclose the fees paid, according to the bills. The forms would be available for public review.
"There's nothing in state law with regard to due diligence that has to be carried out by county government before long-term debt is established," said Sonny Brasfield, executive director of the Association of County Commissions of Alabama, which sponsored the legislation. "In my view, it's a significant change and step forward in terms of disclosure issues."
Brasfield said the legislation was thoroughly vetted.
"It is a unified effort that has support from both county government and the underwriting community in Alabama, which I think says a lot about both groups and what we think is a significant step in the right direction," he said.
"We involved everyone in the process in developing the legislation because it's an issue that the public is very sensitive to in Alabama right now," Brasfield said. "Other counties' reception in the bond market has been different since the situation in Jefferson County. I think the general feeling inside Alabama at the county commission level is that we needed to do something like this to help reestablish our credibility."