BRADENTON, Fla. - Jefferson County, Ala., commissioners should increase sewer rates 25%, implement a series of revenue enhancements, and continue working toward restructuring the sewer system's massive debt load, two court-appointed masters said Tuesday.

In a 65-page report that is part of a federal lawsuit seeking a receiver for the county's sewer system, the special masters not only detail why they believe the suggested rate increases are reasonable, they also review the sewer system's operations, inefficiencies, billing practices, and rate increases since the county began working on a court-ordered consent decree in 1997 to rehabilitate the region's failing sewer system.

The average sewer bill in Jefferson County was $62.90 in 2008, up from $15.13 in 1997, the special masters said. The average annual sewer rate increase over this period was 14.2%.

Jefferson County has spent more than $3 billion to renovate, upgrade, or replace sewers, pumping stations, and wastewater treatment plants over the years, the report said, noting that "as a result, it appears likely that the majority of Jefferson County's sanitary sewer system is currently in 'good' condition."

But the report also paints a clearer picture of what confronts the county as it teeters on the verge of bankruptcy because of the sewer system's $3.2 billion of debt, which is mostly in variable- and auction-rate mode, and approximately $5 billion of upside-down swaps.

Sewer rates would have to increase 392% in order to pay $610.5 million for sewer debt service in fiscal 2009, according to figures cited in the report that were prepared by Haskell, Slaughter, Young and Rediker LLC, the law firm representing the sewer system.

Under this scenario, the average monthly residential bill would increase to $309 from the current $62.90, the special masters said.

But after an examination of various technical factors supporting the "reasonableness" of rate increases, the special masters concluded that customer rates to support debt service should not increase more than 25% in any one year.

They also recommended that 50% of the revenue requirement necessary to support debt should be recovered through a fixed monthly charge, and the county should implement a customer assistance program to mitigate the adverse impacts of necessary rate increases on the most economically vulnerable customers.

The report said four options should be pursued by the county to help meet the sewer department's cost of service - increase customer rates, implement revenue enhancements, renegotiate the sewer system's debt with lenders, and pursue tax or other government subsidies.

The report also recommended that the county increase impact and industrial surcharge fees, implement a monthly reserve capacity charge of $30 for residents who are septic system owners and can access the sewer system, implement a $2 per month private water meter fee, identify customers who are not being billed, bill all commercial accounts at 100% of water usage, implement a $20 a month clean water charge for septic system users who do not have access to the sewer system, and pursue unauthorized sewer connections.

U.S. District Court Judge R. David Proctor appointed the special masters last year after the county's two largest bond insurers and trustee filed a lawsuit asking that a receiver be appointed to take charge of the sewer system. Among the charges in the suit, the insurers claimed that the county failed to follow the advice of several consultants and appropriately increase sewer rates.

The special masters, John Young, president of American Water Services Co., and John Ames, a tax, finance, and bankruptcy attorney with Greenbaum Doll & McDonald PLLC, urged Proctor to order their report be presented to each county commissioner and county management staff.

"The special masters believe these recommendations will assist the parties in their continuing negotiations toward a consensual resolution of the disputes in this litigation," their report said.

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