Alabama pension chief David Bronner penned a column in his agency’s April newsletter to state retirees to express his latest view on the sewer debt crisis in Jefferson County — a view that seems to suggest that the county simply default on its obligations.
Jefferson, which includes Birmingham and is the state’s most populous county, is saddled with $3.2 billion of outstanding sewer debt. Most of it is in troubled auction- and variable-rate mode that incurred higher-than-anticipated interest rates and accelerated payments due to rating downgrades of bond insurers.
The county, which says sewer system revenues aren’t enough to pay back the debt, also owes $748 million for related swap termination costs that are subordinate to debt service.
In the April newsletter, Bronner said corruption has plagued the sewer system, resulting in a number of local convictions. He also blamed the scandal on banks involved in the debt deals.
Bronner also rejected a restructuring plan under consideration that calls for applying the excess revenue collections of a local sales tax to the refinanced sewer debt. That sales tax currently is dedicated, by law, to schools.
“With all the corruption, it is absurd to once again punish the taxpayers with a bailout of the bad guys, much less to steal education funds from the kids of Jefferson County,” Bronner wrote.
Bronner, who once advocated that the county file what would be the largest municipal bankruptcy in U.S. history, suggested a different approach to dealing with the debt problem. First, he said, the county should reduce sewer rates that are among the highest in the country.
“Second, because the bonds are revenue bonds, give the bondholders the revenue and nothing more. That is why we call them revenue bonds!” Bronner recommended in his column. “Finally, relax and forget about it for awhile.”
“Then sit back and watch the fight between bondholders, bond insurers, and investment bankers who 'ripped-off’ the taxpayers of Jefferson County in the first place,” he wrote.
Last July, Bronner offered to use pension funds to buy the sewer system for far less than the outstanding $3.2 billion of debt if the county filed for bankruptcy. Commissioners never acted on that offer.
A month later, Gov. Bob Riley stepped in to take over negotiations with creditors after county commissioners failed to reach an agreement to restructure the debt. A restructuring plan is on the table, but it requires some legislative changes that are under consideration by lawmakers.
Riley also is asking once again that the federal government help the county refinance the debt with some kind of backstop or guarantee.