Jefferson County Receiver Demands $75M
BRADENTON, Fla. — The Alabama court-appointed receiver in charge of managing Jefferson County’s sewer system — as well as its defaulted warrants and swaps — is demanding that the county turn over $75 million from its general fund.
The $75 million is from a Nov. 4, 2009, agreement between JPMorgan and the Securities and Exchange Commission that settled securities fraud and other charges involving the county’s $3.14 billion of troubled variable- and auction-rate sewer warrants and related interest-rate swaps.
The county received $50 million shortly after the settlement and another $25 million in February from an SEC fair fund designed to assist harmed investors. Though JPMorgan did not admit or deny the agency’s charges, it also forfeited $647 million of swap termination fees with the county.
John Young, who was appointed the sewer system’s receiver last September, made an initial claim against the $50 million in November.
Last week, he filed his first report on the sewer system with the court, which included a recommended 25% rate increase and the creation of a program to assist low-income ratepayers.
In a letter to the county Monday , Young argued that the settlement funds were provided to the county for the purpose of assisting “displaced county employees, residents, and sewer ratepayers,” according to the SEC settlement order.
Young also said the county hired three law firms with sewer system revenues to “pursue collection of the JPMorgan payment.”
“In violation of the indenture, the county appears to have diverted the JPMorgan payment to its general fund,” Young wrote.
Young demanded that the county deliver the $50 million in order to establish a multiple-year, low-income assistance program.
In a second letter to the county , he made a claim to potentially encumber the $25 million from the SEC fair fund settlement.
County attorneys are reviewing options and preparing a response to Young’s demands, according to a spokesman for Commissioner Jimmie Stephens, who oversees the county’s finance committee.
Young said if the county fails to agree to transfer the funds within seven days, or agree to a payment plan to fund the low-income assistance plan over a multi-year period, he “will file an appropriate motion with the court.”
The demand for the $50 million could be the catalyst that forces Jefferson County to file for the largest municipal bankruptcy in U.S. history.
The government has struggled to stay afloat — and even cut millions from its budget — since losing $77 million of revenue when a court struck down a legislatively authorized occupational tax earlier this year. The state Legislature refused in its recent session to approve replacement funding.
The county has laid off more than 500 workers, cut services, and closed facilities.
Gov. Robert Bentley reportedly is seeking a meeting with the County Commission and local lawmakers next week to discuss finances, the sewer system, and the prospects for the county to file for bankruptcy.
The $75 million of SEC settlement funds were identified earlier this year by a county-hired turnaround firm as a “contingent claim” in the budget against which there could be a “potential reclamation.”
At the time, the firm and county officials would not explain how the funds could potentially be reclaimed.
Jefferson County later said that the $75 million JPMorgan settlement was placed into its general fund reserve for liquidity purposes since the county now has severe cash-flow problems due to the loss of the occupational tax revenue and because the government has no access to the capital market.