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Jefferson County, Alabama: One Year Later And No Progress On Sewer Crisis

Mired in debt and still facing the nation’s largest municipal bankruptcy, Jefferson County, Alabama, has made little headway to solving its sewer debt crisis. At the center of controversy are members of the Jefferson County Commission, whom many say have let personal issues take a front seat to finding a solution for the ongoing sewer fiasco.

Problems for Jefferson County began seven years ago, when county commissioners entered into an ill-fated arrangement with Wall Street banks to refinance $3.2 billion worth of bonds for a sewer system overhaul. The deal involved highly complex interest-rate swaps that were supposed to protect Jefferson County from rising interest rates on its sewer bonds. Instead, the county faced double-digit interest rates and calls from creditors for the early repayment of the borrowed money. In the process, Jefferson County commissioners turned over $120 million in fees – six times the prevailing rate – to JP Morgan and other financial institutions.

With bankruptcy looming, Alabama Governor Bob Riley struck a deal with the county’s creditors in September 2008 to restructure the county’s $3.2 billion sewer debt at lower, fixed interest rates over a longer term.

Since then, however, a permanent solution to the county’s sewer issue has yet to emerge. Meanwhile, costs continue to climb.

As reported Feb. 12 in the Birmingham News, Jefferson County’s sewer system generates about $138 million a year from customers after paying for system operations. Under terms of the various deals, Jefferson County finance officials estimate they would owe $577 million in debt service this fiscal year alone. By comparison, the county estimated it would need just $125 million annually to cover debt service at the beginning of 2008.

In addition, the county has paid about $5 million for legal and financial advice since last February. Then there’s the cost to get out of those complex interest-rate swaps that the county used to protect itself against rising interest costs on its sewer debt. That has mushroomed to $608 million from about $180 million in March 2008.

As for Jefferson County residents, they’ve also paid the price for the sewer debacle and the fiscal bungling of elected public officials. Sewer rates have skyrocketed over the past decade in Jefferson County, rising more than four-fold. In late December, county commissioners wisely decided to veto yet another sewer-rate increase that would have gone into effect Jan. 1, 2009, and increased sewer charges by nearly 400%.

Meanwhile, the sewer problem continues. Instead of coming up with solutions, the Jefferson County Commission tried to hire a Washington, D.C. lobbying firm to the tune of $1 million to secure federal bailout dollars to pay down the county’s sewer debt. Perhaps in all their misplaced wisdom, commissioners didn’t hear that President Barack Obama takes a hard line on corporate lobbyists.

As it turns out, the lobbying outfit that commissioners wanted to hire, Book Hill Partners, walked away from the controversial contact last week.

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