BRADENTON, Fla. – A proposal by Jefferson County, Ala., to factor corruption into future sewer system rate increases is setting the stage for another legal fight with the trustee for the system's $3.2 billion of defaulted sewer warrants.
In addition to corruption that increased costs of rebuilding the system, the county also proposes to factor in a new valuation of system assets that could be significantly less than the outstanding debt.
Those elements, as well as an overhaul of the system rate structure anticipated to result in an estimated 5.9% increase in revenues, will be considered Tuesday when county commissioners hold their only public hearing on rates for the first time since at least 2008.
The proposed rate increase is one of the first major steps the county has taken since filing the largest municipal bankruptcy in the nation last November with more than $4 billion of outstanding debt.
Bank of New York Mellon, trustee for the sewer warrants, said in a court filing Friday that it wants a detailed financial examination of sewer system records because the county has not clearly explained income and expenses of the system since regaining control of it in January from a state-court appointed receiver.
BNY Mellon also complained about the county's complex plan for evaluating future rate increases, and objected to considering them based on the value of the system as well as past corruption. Rates should be based on claims for paying the outstanding debt, according to the bank.
"To the extent the county's own fraud, graft, corruption, waste, and gross incompetence in the construction of the system resulted in the county spending more money than it might have otherwise spent on the system but for such misconduct, it is unimaginable that the warrant holders who loaned the money to improve the system should bear the consequences of the county's actions," the trustee said.
BNY Mellon also complained that the county's proposal lacked detail, and said, "The trustee needs and is entitled to know the county's basis for its conclusion and, among other things, the amount of the indebtedness the county believes it would be servicing and how it arrived at that amount."
Federal bankruptcy Judge Thomas Bennett has been asked to consider the trustee's request for a financial examination during a regular hearing scheduled for Nov. 15.
Many documents about the proposed sewer system rate increase are posted at www.jeffcosewerhearings.org.
Meanwhile, Bennett holds an expedited hearing Tuesday to consider Jefferson County's motion to bypass lower courts and appeal directly to the 11th Circuit Court of Appeals.
Issues in the appeal include whether Bennett erred in limiting how the county can spend sewer system revenues. The judge ruled that the county could not spend sewer revenues on legal fees related to the bankruptcy case and other items.