BRADENTON, Fla. — Jefferson County, Ala., on Tuesday said it has not used sewer system revenues for unauthorized expenses as alleged by the trustee for the county’s $3.14 billion of defaulted sewer warrants.
The county said in a disclosure to warrant holders that it was responding to a lawsuit filed by Bank of New York Mellon last week.
BNY Mellon claimed that the county held back sewer system revenues that otherwise would go to pay debt service, and planned to use the revenue for expenses not permitted by the indenture for the warrants.
“The county maintains the remittances were in proper amounts and consistent with rulings in the January 2012 bankruptcy court decision that the trustee’s lien is subject to the necessary operating expenses of the county sewer system pursuant to … the bankruptcy code,” the disclosure notice said.
Jefferson County said that it has reserved funds for system maintenance and other expenses “consistent with the previous recommendation and report” of the former state court-appointed receiver.
Federal bankruptcy Judge Thomas Bennett on Jan. 6 stripped the receiver, John Young, of his power to run the sewer system. Bennett ruled that the receivership was abolished the moment Jefferson County filed the nation’s largest bankruptcy on Nov. 6. He turned the sewer system over to the county.
Bennett also ordered debt service payments to continue but said net revenues to support those payments could be reduced to pay “necessary operating expenses” of the system.
“In accordance with the January 2012 bankruptcy court decision and applicable law, actual system maintenance and other expenses have been deducted from system revenues,” the county’s disclosure said. “The balance has been reserved pending further determination by the bankruptcy court.”
The county went on to say that it provided the trustee net system revenues in the amount of $4.13 million in December and $2.26 million in January to pay debt service, and that it was believed all January debt payments were made except for those due to banks providing standby purchase agreements.
The disclosure said the county did not know if February debt service payments were made. The county also posed a detailed list of questions for the trustee to answer concerning payments and its own disclosures to warrant holders.
The bank declined to comment on the county’s notice.
In a complaint for declaratory judgment filed Friday, BNY Mellon asked that the judge enter a declaratory judgment supporting its claims, and defining “operating expenses.”
The bank charged that Jefferson County withheld more than $9 million of net revenues purportedly for system operations that are “clearly excluded in the indenture’s definition of operating expenses,” including fees related to the county’s bankruptcy case.
