BRADENTON, Fla. - As Jefferson County, Ala., commissioners face critical deadlines in their year-long quest to restructure $3.2 billion of sewer debt, a flurry of public accusations has emerged as a federal judge next week determines who will control the financially troubled sewer system.
A hearing on an emergency motion to appoint a receiver to oversee the system is scheduled for Wednesday in federal court in Birmingham, the county seat.
In addition, the county's sewer debt forbearance agreements expire tomorrow.
Commissioners, in special session today, are expected to approve extending those agreements until April 20.
But in advance of the federal court hearing some commissioners have reacted publicly to a report released last week by special masters in the receivership case. The 65-page report suggested sewer rate increases and other revenue-raising mechanisms to make the sewer debt payments that are due this year.
The report elicited a scathing response from commissioner Jim Carns, a Republican who alleged that one of the special masters, John Young, president of American Water Services Co., was not impartial because his company inquired about purchasing the Jefferson sewer system last year.
Because of his position as a special master, Young could not comment, a spokesperson said.
At this point, American Water's interest in Jefferson County's sewer system is not clear, nor is it known if Young disclosed that interest to the federal judge who appointed him to serve in the case.
But the potential buyer was news to commission president Bettye Fine Collins, also a Republican, who on Monday sent out a press release chastising Carns and a former member of the county's finance team for not revealing the inquiry last year as the county struggled to negotiate a restructuring of the debt.
"This doesn't seem like a process of rational people getting the sewer debt resolved," said Andreas Rauterkus, assistant professor of finance at the University of Alabama in Birmingham, who has been using the county's situation as an object lesson in his credit market classes each spring.
"This spring I thought I'd be looking back at this," Rauterkus said. "I did not expect to be standing here talking about this as an ongoing matter."
On Tuesday, Jefferson County's attorneys filed a 10-page motion asking the federal judge in the receivership case to continue next Wednesday's hearing and stay litigation proceedings. The motion said there is "no emergency, nor any risk of immediate and irreparable harm" that required the court to act next week.
As long as "the political processes are ongoing" and the special masters continue their work, the "hearing will do more harm than good," the county's motion said. It also noted that the special masters' report last week contains 47 findings or recommendations that county officials need to study and act upon.
The motion also said more time is needed for various actions by the Alabama state and federal governments to take place. The motion said the plaintiffs - Syncora Guarantee Inc., Financial Guaranty Insurance Co., and the Bank of New York Mellon - oppose delaying next week's hearing.
The special masters' report recommended sewer rate increases, revenue enhancements, and other measures to deal with the system's financial problems to meet current debt service requirements, which have spiraled higher because of collapsing variable- and auction-rate markets.
Last week after reading the special masters' report, Carns said that the county should immediately file for bankruptcy to foreclose the possibility of a federal court-appointed receiver.
Carns said the special masters failed to support their recommendations with "adequate economic, legal, or public policy analysis, and the recommendations conflict with the conclusions of other respected experts."
"The implementation of these recommendations would be disastrous to low income sewer users in particular and the economy of Jefferson County in general," he said.
The special masters' report does not compare what the county's required debt service payments would be in a bankruptcy versus a non-bankruptcy setting, said Jeffrey Cohen, with Cohen & Associates PC in Denver.
"How could a judge order the receiver to implement rate increases if he doesn't know what the debt is?" Cohen asked. "The kind of power he would have to give a receiver would be extraordinary and it's not going to make the residents of Jefferson County very happy."
Cohen said the special masters' report is useful to the extent that it details actions that can be taken by the county to improve the sewer system and its financial operations.
"Mr. Carns is right in his observation that the federal court will be pushing the limits of its jurisdiction in ordering fees," Cohen said. "This will not be resolved any time soon if the court goes down that path."
Rauterkus said he did not see the difference between a federal judge appointing a receiver for the sewer system or a bankruptcy judge placing the system into receivership, "other than the county's credit rating suffering a long time" following a bankruptcy filing.
"I believe if the county doesn't respond to the special masters' report, they are going to get put into receivership," he said. "Maybe that's what they want. Then they can raise their hands and say, 'It's been taken out of our hands.' "
As of press time yesterday, the federal court hearing was still scheduled to be held next Wednesday.
The case was filed by Jefferson County's largest bond insurers, Syncora and FGIC, along with the Bank of New York Mellon as trustee, who want a receiver to implement measures that would raise revenue to pay debt service.