Owners of Jefferson County, Alabama, sewer debt may offer to match or reduce three years of 8 percent annual sewer-fee increases in a county plan to restructure its bonds, said the court-appointed receiver managing the system.
Assured Guaranty Ltd. (AGO), a bond insurer that guarantees some of the $3.14 billion at stake, may back part of a new issue to help cut borrowing costs and meet the county’s rate target, the receiver, John Young, said yesterday in a telephone interview. Commissioners may get the offer this morning, he said.
“The creditors are going to have an offer coming back that will have potential rate increases equal or below what the county has proposed,” Young said. “We’re doing everything we can do to minimize the rate impact, which we believe the focus ought to be on.”
Commissioners in Jefferson County, home to Birmingham, Alabama’s biggest city, scheduled a meeting tomorrow where they will vote either to seek Chapter 9 bankruptcy protection or to approve terms of an agreement with creditors, which include JPMorgan Chase & Co. (JPM) and bond insurers Assured, Syncora Guaranty Inc. and Financial Guaranty Insurance Co. A bankruptcy would be the largest by a municipality in U.S. history.
The size of any rate increases has become a sticking point because of who uses the system, said Commissioner George Bowman, who represents one of the two poorest districts in the county.
“Any rate increase, no matter how small, is going to come on top of all the rate increases we’ve had to date,” Bowman said by telephone. “So far, it’s been more than 300 percent.”
Almost 70 percent of sewer users are in the two county districts with the lowest average incomes, Bowman said.
“These are the poorest people in Jefferson County that are going to pay this,” Bowman said. He said he is encouraged by the apparent movement on the issue.
Jefferson County’s sewer system serves about 478,000 people through 144,000 accounts, according to a June report from Young. The median household income in the county is $43,312 a year, U.S. Census Bureau figures show. Many sewer customers reside in Birmingham, where the median household income was $26,735 in 1999, according to the latest census data available.
The average residential wastewater bill is $37.74 a month, according to Young. He has previously proposed setting up a bill-assistance program for low-income customers, funded by $75 million from a settlement paid by JPMorgan over alleged securities violations by the bank related to the sewer bonds.
A fresh proposal from holders of the bonds that goes beyond the county’s in terms of restraining sewer-fee increases would be welcome, said Commissioner Joe Knight.
“That’s encouraging, but we still have a long way to go,” he said. “There are a lot more parts to this proposal and we’ll have to take a look at the whole thing.”
Assured backs $495.8 million of Jefferson County sewer debt, according to its latest filing. Assured’s municipal-bond insurance subsidiary is rated AA+ by Standard & Poor’s, the second-highest investment grade.
Ashweeta Durani, a spokeswoman for Assured, didn’t immediately return a call seeking comment.
Last week, creditors proposed reducing the amount of sewer debt the county owes by $1 billion, while asking for 8 percent annual increases in system fees for five years, according to commissioner Sandra Little Brown. Jefferson officials have asked the creditors to write off $1.17 billion of the debt, the Birmingham News reported yesterday. Bowman and Knight said they couldn’t confirm the report.
County officials are under political pressure to restrain fees, which have climbed more than threefold from 1997 to 2008 as the sewer system was rebuilt under a federal consent decree.
Young, a former chief technology officer at American Water Co. in Voorhees, New Jersey, has been working with Alabama officials to broker a deal. He was appointed by a state judge to manage the system last year after a lawsuit by the trustee for the debt.
A deal struck by tomorrow’s deadline would begin a process that may last into next year, Jefferson County Commission President David Carrington said Aug. 9. The county would approve a term sheet that would have to be crafted into an agreement, he said, and the Alabama Legislature would have to pass changes needed to help Jefferson County rebuild its finances.
The state may further improve the creditworthiness of a new sewer-bond issue by offering a nonbinding promise that it will consider appropriating money if system revenue isn’t enough to pay debt service, Young has said. The Legislature would have to pass the so-called moral obligation backing.
State lawmakers would also need to clear the creation of an independent utility board that would assume control of the sewer system and issue the new debt, Young has said.
“My focus is to minimize rates and put together a successful corporation,” he said yesterday.
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