BRADENTON, Fla. — Saying that Jefferson County, Ala.’s sewer debt crisis has gone on too long, a grassroots organization of business leaders is trying raise public support to press local politicians and the county’s creditors for a solution.
On Wednesday, the group unveiled a new organization called JeffCoCan and launched a Web site at www.jeffcocan.com.
“Its just discouraging to think of the impact this is having on our community and what will happen to our children with the debt,” said Slade Blackwell, managing partner at Inkana Development, a health care and infrastructure development firm in Birmingham.
Blackwell said formation of the organization has been in the works for months and there have been hundreds of meetings with people discussing various aspects of the sewer crisis to understand its complexities, including the implication of filing for bankruptcy should the county choose that route.
Jefferson County owes $3.2 billion of variable- and auction-rate debt on its over-leveraged sewer system, which has been tainted by corruption.
The debt is being held by banks, mostly at penalty interest rates, and the county has defaulted on some payments. Numerous plans have been discussed and negotiated over the past year to restructure the debt, but none have been successful.
The situation has focused international media coverage on whether Alabama’s largest county will become the largest municipality to file for bankruptcy.
Nearly two dozen county employees, elected officials, and contractors have been charged with corruption in the building of the sewer system and its financing. Most recently, former Birmingham mayor and Jefferson County commissioner Larry Langford was convicted on 60 federal pay-to-play charges, mostly related to the sewer refinancings he orchestrated in 2002 and 2003.
JPMorgan, the county’s largest creditor, settled securities fraud and other charges Nov. 4 with the Securities and Exchange Commission over its failure to disclose payments it made to assure its participation in the county’s sewer bond and swap deals.
Last Friday, Jefferson County filed suit for fraud and conspiracy against JPMorgan, Langford, and a host of others involved in the bond deals.
“One thing we’re trying not to do is point to blame or talk about past mistakes,” said Blackwell, who added that the sewer crisis should have been resolved last year. “Our goal is focused on the future and a solution. Nothing good will come if we keep focused on the negative.”
“I think we’ve all had enough,” he said when asked why the group emerged now. “I’ve stood by on the sidelines and watched as this has gone unresolved and it’s escalated with no solution. There hasn’t been anybody really educating the public and I think if the public knows what’s really going on it would help push local leaders to get involved and find a solution.”
In addition to creating a forum for officials to resolve the crisis, Blackwell said his organization also wants to educate the public through its Web site and neighborhood meetings.
JeffCoCan is encouraging the public to urge local officials to find a solution, Blackwell said, pointing out that the lingering crisis is harming economic development efforts statewide.
“We need to get it resolved,” he said. “That’s what we’re trying to do.”
Over the last two years, numerous solutions to the sewer crisis have been proposed — and failed. Several investment banks proposed restructuring plans but none were accepted by county commissioners. Eventually, Gov. Bob Riley stepped in and helped negotiate a plan last fall but it failed to get support from state lawmakers.
“We’re proposing … that there be an independent mediator, somebody to bring everybody together to negotiate a settlement,” Blackwell said. “We want to put forth a proposal that brings everybody together.”
After reviewing various proposals put forth so far, Blackwell said JeffCoCan is promoting a three-pronged plan that calls for using locally collected excess sales taxes now pledged to Jefferson County school bonds to help pay down the sewer debt; placing the sewer system under a nonpartisan, dedicated independent control board; and getting the county’s creditors back to the negotiating table in hopes of reducing the sewer debt.
“None of these are new ideas,” Blackwell said. “We’re not trying to take credit for them. But we’ve looked at many proposals and we tried to craft our solution by taking bits and pieces to come up with these three options.”
One investor in Jefferson County’s debt welcomed the new organization and said he is “excited someone is taking the lead on this.”
“It will require efforts on the part of all parties to resolve this sewer mess,” said the investor, who did not want to be named.
Creating an independent board to oversee the county’s sewer system could be a key element to regaining investor confidence in Jefferson County, said Andreas Rauterkus, assistant professor of finance at the University of Alabama at Birmingham’s School of Business.
Rauterkus was also critical of the lawsuit Jefferson County filed last week, and noted that next year is a major election year for the County Commission.
“What the county is trying to do in my mind is to show its constituency that the mess was not their fault and now we have legal proof, so please re-elect me next year,” Rauterkus said. “And the taxpayers could be angry for the county wasting money by overpaying on fees.”
“As an investor, I see somebody who tries anything possible to not pay me and the next time around I probably will not invest in those issues anymore, or at least I will demand a higher yield,” he said.
Rauterkus said he believes most investors do not care about how a bond deal is conceived and what kind of underlying payments are exchanged.
“Having said that, if I am dealing with an issuer or underwriter that has run into trouble in the past and those dealings impacted the flow of funds back to me, I am concerned and that concern will be priced into the issue,” he said.
It is Jefferson County’s unwillingness and inability to work out the issues regarding the outstanding sewer bonds that will hurt them in the future, according to Rauterkus.
One of Jefferson County’s investors said people who buy municipal debt operate on “blind faith” that local governments must have balanced budgets. And if the budget isn’t balanced, then municipalities use mechanisms to ensure bondholders get paid, including raising rates if necessary.