Tuesday, January 31, 2012

Bham News: Federal judge allows contempt motion to continue against Jefferson County despite its bankruptcy

Published: Tuesday, January 31, 2012, 2:50 PM Updated: Tuesday, January 31, 2012, 2:50 PM By Kent Faulk -- The Birmingham News BIRMINGHAM, Alabama -- Jefferson County's bankruptcy won't halt contempt of court proceedings against the county in a more than 30-year-old legal case challenging the county's employment practices, a judge has ruled. U.S. District Judge Lynwood Smith on Friday ruled that the automatic-stay provisions under the bankruptcy law do not apply to the portion of litigation in the case that involves Jefferson County. That includes a motion by plaintiffs in the case to hold the County in contempt of court for failure to comply with the terms of its consent decree, the judge wrote. Under federal bankruptcy regulations, an automatic stay of action in lawsuits against the debtor usually applies. Jefferson County had entered a consent decree in 1982 to settle lawsuits filed in the mid-1970s that claimed Jefferson County, Birmingham, and the county's personnel board had discriminated in its employment practices. The lawsuits were eventually consolidated. All three signed consent decrees in 1981 and 1982 to clean up their hiring practices and provide equal employment opportunities to all. Smith ordered Birmingham released from its consent degree and federal court supervision last week. The personnel board was released from federal court supervision in 2008. But Jefferson County has remained under its consent decree, and in 2007 plaintiffs in the case filed a motion asking that the county be held in contempt of court for failure to comply with the terms of its consent decree, according to a court document. "Since 1982, the county has been under direct court order to "insure that blacks and women are considered for employment by the county on an equal basis with whites and males and to correct for the effects of any alleged prior discriminatory employment practices by the county against blacks and women," according to the 2007 motion. "The county has yet to meet that obligation; in fact, the county has utterly ignored it," according to that motion. In Smith's order ruling that the plaintiff's motion to hold the county in contempt may resume, he wrote that the two sides have "expressed an interest in pursuing an out-of-court resolution of the issues raised in the motion." So the judge set deadlines for the two parties to come to an agreement. Those include: on or before Feb. 8 the plaintiffs must submit a written proposal to the county regarding their plan to resolve the remaining dispute without the necessity of trial; on or before Feb. 24 the county has to submit a written counter-proposal to the plaintiffs; and on or before March 12, the two sides shall file a joint statement with the court, "disclosing the status of their negotiations and indicating whether there is a necessity to proceed to trial." Efforts to reach attorneys for the county or the plaintiffs in the case were unsuccessful. © 2012 al.com. All rights reserved.

Sunday, January 29, 2012

Bham News: Jefferson County bankruptcy lawyer: Non-user fee or sewers still on table

Published: Sunday, January 29, 2012, 8:30 AM By Barnett Wright -- The Birmingham News View full size Kenneth Klee: The county's lead bankruptcy attorney, said no ideas are being dismissed as the county prepares a study aimed at figur­ing out how to generate more sewer system revenue. (Special) BIRMINGHAM, Alabama -- A much-criticized idea for charging a non-user fee to Jefferson County resi­dents who are not on the county's sewer system will be studied as county officials search for a plan that will help it emerge from bankruptcy. Kenneth Klee, the bankruptcy attorney leading the county's efforts, said no ideas are being dismissed as the county pre­pares to undertake a study aimed at figur­ing out how to generate revenue from the sewer system to make payments on its $3.14 billion sewer debt. "The study that should be done should consider all options," said Klee, who is based in Los Angeles. "Everything should be on the table." U.S. Bankruptcy Judge Thomas Ben­nett ruled this month that county com­missioners are responsible for figuring out how to raise the system's revenues -- through its first sewer rate increases since 2008, or other means. Bennett wrote in his ruling that the county must take steps to maintain the system and address other concerns, "including appropriate revenue enhancements." Klee said courts have found that everybody in the county benefits from having a sewer system that works. "There are sewage leaks, there are threats to the public health and safety, so it's quite understandable that some constituents believe that all members of the county should have to pay something to support the sewer," he said. "Others believe that only those who use the sewer should have to pay for the sewer, and those are the types of things that elected public officials, at the end of the day, have to resolve." Of county residents, 55 percent are on sewers and 45 percent are not. Commissioner George Bowman said a non-user fee is one of the best ways to generate revenue for the system. "Just from a fairness standpoint, everybody in the county that drinks the water and has benefited from the EPA mandate that we improve the system should share in the cost," Bowman said. "The challenge is to come up with a term that is palatable for people who are not on the sewer. Some people have said a 'clean water fee,' some folks have said a 'nonuser fee.' Commission President David Carrington said the county has directed attorneys to hire a company to do the rate study. That company's job will be "to find out what your cost of service is, and that should drive your rates, as well as the impact on the poor, the reasonableness," Carrington said. He said the rate and costof- service study will take 90 to 120 days. Receiver John S. Young's cost of service and sewer rate study took seven months to complete. Carrington said he is opposed to a non-user fee but is not against it being discussed. "I think one of the things that is a problem in the state Legislature is that many legislators take a polar position and say they are totally opposed to this, and you can't find consensus," Carrington said. "While in practice I am opposed to a non-user fee and would fight against that if someone else wants to advocate it, I think it needs to be discussed." Lawyers for the county say commissioners need their own experts to help determine sewer rates for Jefferson County. Last year Young, the court-appointed receiver over the sewer system, recommended a 25 percent annual rate increase for sewer customers. Klee said the commission is responsible, "both politically and legally, for any rate increase that it proposes . . . and this commission is going to want to have complete, accurate information in order to make its decision about what type of rate to recommend, if any." Increases Carrington said he expects some sewer rate increases. "I think it's impractical for the public to think there will never be an increase over 40 years," he said. "I've said all along there needs to be increases for inflationary and operation expenses as well as capital improvements." Young, whose authority to raise rates and exercise autonomous control of the sanitary system was stripped this month by a bankruptcy judge, worked with county officials and sewer system creditors to lower recommended increases to approximately 8.2 percent a year for three years and no more than 3.25 percent per year afterward. But county officials say they feel more comfortable having their own specialists issue a cost-of-service study. "The receiver did the rate study with a particular goal in mind, which was enhancing the amount of payments to Bank of New York (Mellon) and its beneficiaries without really considering all of the other ramifications," said David Stern, an attorney for the county. "I think in order to responsibly deal with the rates on a going-forward basis, the county needs to have an appropriate expert or experts consider all of the issues, including the appropriate rates and any impact that would have upon users of the sewer system who have lower incomes." Klee agreed. "This is a vitally important point to understand," he said. "The receiver's report says he was acting with interests of the public in mind. But that's not really what was happening. The receiver was charged legally with collecting revenues to pay the sewer warrant holders and he was put in place by the indenture trustee. That's where his responsibilities were. That's where his loyalties were. "So the study that he produced was designed in order to service the full amount of debt. That's how those rates were designed. We don't believe that's how rates should be set going forward in terms of fair rates under Alabama law and Amendment 73 to the Alabama Constitution." Defends motives Patton Hahn, a lawyer for Young, said "the county's characterization of the receiver's motives are incorrect, improper, and meritless." "The receiver considered several potential ramifications of potential rate increases," Hahn said. "Among other things, the financial capabilities of all rate payers were considered during the receiver's consideration of potential rate increases and rate design changes, including the implementation of a Low Income Assistance Program. "The receiver's responsibilities included the protection of public health and the environment through proper management of the Jefferson County Environmental Services Department," Hahn said. "This obligation requires maintaining the financial and operational viability of the system and compliance with regulation. Maintaining efficient operations and the proper system revenues are critical to meeting these goals and assuring that adequate funds are available for future investment." Join the conversation, add a comment or email bwright@bhamnews.com © 2012 al.com. All rights reserved.

Friday, January 27, 2012

Bham News: Archibald - Alabama is made for reality TV

Published: Friday, January 27, 2012, 5:57 AM By John Archibald -- The Birmingham News Alabamians have nailed TV's reality. What about the other kind? The first line of the Thursday promo for today's City Scene reached up and grabbed me. It said, and I quote: Alabama well represented Yikes. Not my Alabama! My Alabama has a long history of being poorly represented, of being represented only by those who represent ... themselves. If Alabama is well represented, then my work is done. I'm out of my element, out of a job, out of my ever-lovin' mind. But that'll teach you never to stop reading mid-sentence. Because the very next line explained it all. It said: on reality TV Whew. My bad. There was no pretense that Alabama is represented well. Only that it is well represented on reality TV. Which is true. This state is like the Surreal Life. It can't fund itself, protect itself or sell itself, but it has conquered everything from American Idol to American Pickers. We've wooed the bachelor, remained among the last comics standing, and proven that rednecks and rocket scientists are not mutually exclusive. If life were a reality show, we might actually have a Top Shot. So forget the reality check. We're going to have an Alabama reality show casting call: Auditioning for The Apprentice is the Jefferson County Commission. Those guys are clearly learning on the job. And with all the pink slips they handed out in the last year, it's clear they know the magic words: "You're fired." At least the county has -- for now -- shed itself of court-appointed sewer receiver John S. Young. He was making this town feel a little Jersey Shore. Without the Snooki. Is Deal or No Deal still on? The Jefferson County Legislative Delegation would be perfect for that show. The coming Legislative session, in which local lawmakers will spar over earmarks and occupational taxes, will pit nine county Democrats against nine county Republicans. It's sure to end in a ... Family Feud. Without the kisses. There doesn't seem to be a lot of difference between the Shelby County School Board and The Real World. They're both shocking and unapologetic. Those guys should really audition for Are You Smarter than a Fifth Grader? Turns out they sure aren't smarter than fourth graders. Birmingham Mayor William Bell could star in half a dozen reality shows. Survivor? Check. He's been down but not out. Trading Spaces? Check. He's bounced from the city to the county and back again. Since he's been mayor, though, we've learned he's best suited for the Ashton Kutcher role on Punk'd. That makes the council his mark. Boy, have those guys been Punk'd. The Amazing Race? It's the Republican chase for the 6th Congressional District. It's Rep. Spencer Bachus vs. state Sen. Scott Beason vs. political lightning rod Stan Pate vs. Blount County Probate Judge David Standridge vs two other relative unknowns. It's like Who Wants to be a Millionaire vs. The Mole vs. Sons of Guns vs. The People's Court vs. Average Joes 1 & 2. And in the end, we might end up with the Last Comic Standing. Yes, we are made for reality TV around here, bathed in manufactured drama and dyed in the wool of dysfunction. Some day, we might even learn to be good at reality itself. John Archibald's column appears Sundays, Wednesdays and Fridays. Write him at jarchibald@bhamnews.com. © 2012 al.com. All rights reserved.

Thursday, January 26, 2012

Bham News: Report: Houston Astros owner fighting request to be questioned by Jefferson County attorneys

Published: Thursday, January 26, 2012, 8:35 AM Updated: Thursday, January 26, 2012, 9:11 AM By Martin Swant --- The Birmingham News BIRMINGHAM, Alabama -- The owner of the Houston Astros says he has "no personal knowledge" of JPMorgan Chase & Co.'s role in Jefferson County's $3.2 billion defaulted sewer debt, according to a report by Bloomberg News. The owner, James Crane, requested in court documents yesterday that U.S. Bankruptcy Judge Thomas Bennett cancel an order requiring him to answer questions about the settled lawsuit against JPMorgan related to $35 million in Jefferson County sewer warrants he'd purchased. Jefferson County attorneys asked Bennett approve a request to question Crane about the legal settlement and to examine documents related to the case lawsuit. In court documents, Crane's lawyers said "it is harassing and unduly burdensome to require Crane to appear and testify," according to the Bloomberg News report. Bennett earlier approved a request by Jefferson County attorneys to view documents in the Texas case. © 2012 al.com. All rights reserved.

Wednesday, January 25, 2012

Bloomberg: Houston Astros Owner Balks at Jefferson County Debt Inquiry

Houston Astros Owner Balks at Jefferson County Debt Inquiry January 25, 2012, 6:36 PM EST JPMorgan Sued by DZ Bank Over Mortgage-Backed Securities Bank Foreclosure Agreement Deadline for States Set for Feb. 3 HSBC Will Return $52 Million to Bankrupt Lehman Brothers Gupta, JPMorgan, Goldman, Stanford, Carnival in Court News U.S. Trustee Announces Wal-Mart for Kodak Creditors Committee By Steven Church (Updates with excerpt from court papers in fourth paragraph.) Jan. 25 (Bloomberg) -- James R. Crane, owner of the Houston Astros baseball team, asked a judge to cancel an order requiring him to answer questions about a lawsuit he settled involving his investment in the debt of bankrupt Jefferson County, Alabama. Crane doesn’t have any personal knowledge about JPMorgan Chase & Co.’s role in $3.2 billion in defaulted debt issued by Jefferson County’s sewer system, lawyers for the investor said in court papers filed today in U.S. Bankruptcy Court in Birmingham, Alabama. The county had won permission to question Crane under oath and to exam documents related to Crane’s lawsuit against New York-based JPMorgan. Crane settled a lawsuit against JPMorgan related to $35 million worth of county sewer warrants he purchased that later went into default. The county is also suing JPMorgan over the sewer debt and said in court documents that it may want to use any information Crane gathered against the bank, which underwrote the bonds. Since Crane doesn’t have any personal knowledge about JPMorgan’s role, “it is harassing and unduly burdensome to require Crane to appear and testify,” his attorneys said in court papers. Earlier this month, U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham approved a request by the county to question the investor, and to review the settlement that ended his lawsuit. Bennett ordered Crane to appear at the Houston offices of his law firm to answer questions about the case. Jefferson County filed for bankruptcy in November after the county, state officials and bondholders failed to implement a tentative agreement to reduce its $3.2 billion in sewer debt by about $1 billion, raise rates and win financial support from the Alabama state legislature. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). --Editors: Peter Blumberg, Glenn Holdcraft To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

Monday, January 23, 2012

Birmingham Business Journal: Young will appeal sewer ruling stripping him of power

Birmingham Business Journal Date: Monday, January 23, 2012, 6:21am CST John S. Young, along with eleven of Jefferson County's major creditors, said they plan to appeal orders by a federal bankruptcy judge that have served to strip Young of his powers to operate the county's financially faltering sewer system. According to the Birmingham News, Young and the creditors filed notices in U.S. Bankruptcy Court in Birmingham late Friday afternoon that they are appealing U.S. Bankruptcy Judge Thomas Bennett's Jan. 6 ruling, plus other orders in the case. The appeals will be to the U.S. District Court.

Sunday, January 22, 2012

Bham News: OUR VIEW: Next step should be to get Jefferson County back on firm financial footing

OUR VIEW: Next step should be to get Jefferson County back on firm financial footing Published: Sunday, January 22, 2012, 5:45 AM By Birmingham News editorial board Protective Life Corp. CEO Johnny Johns makes a point during last week's 'Reinventing Our Community' forum at The Birmingham News. Jefferson County Commissioner Sandra Little Brown listens at left. (The Birmingham News/Frank Couch) Johnny Johns' words were spoken softly, but the message they carried should reverberate loudly across our community. "We should take one of these really hard issues ... and shame those who will not get behind a solution," the Protective Life Corp. president and chief executive officer said Thursday at a forum at The Birmingham News that continued a yearlong conversation on "Reinventing Our Community." Johns mentioned specifically the Jefferson County occupational tax as an issue to take on. His message is important not because he leads a large insurance company, but because Johns is the new chairman of the Birmingham Business Alliance, a relatively new effort to unite and strengthen the business community. Last May, Johns urged a cautious approach to confronting our community's problems. "We need a very sober assessment of what are the fundamental issues we have to challenge, and in what order do we challenge them," he said then at a "Reinventing Our Community" panel discussion. What has changed? Likely, his level of frustration has skyrocketed as Johns and other business leaders fought a losing, behind-the-scenes battle with Jefferson County commissioners and the county's legislative delegation to keep county government from filing the nation's largest municipal bankruptcy. The county had to rely on the Legislature to pass several bills dealing with a proposed settlement with its creditors holding $3.14 billion in sewer bonds, and raising revenue for its ailing general fund. Having the Legislature pass a replacement occupational tax to bolster the county's general fund would have been a key part of avoiding bankruptcy. It is still critical in resuscitating a wheezing county government that has laid off hundreds of employees, shuttered satellite courthouses and faces another $40 million in cuts without the revenue an occupational tax would bring. Most members of the legislative delegation made clear last fall, and they have yet to offer evidence anything has changed, that the delegation wasn't much interested in helping solve funding woes for the county. The county, because it has such limited ability to govern itself thanks to the state constitution, doesn't have the power to solve its financial problems. State Sen. Cam Ward, R-Alabaster, offered a good explanation for the delegation's lack of help. Ward, who served in the House of Representatives for eight years, became a member of Jefferson County's delegation after being elected to the Senate in 2010. He said he was surprised at "how dysfunctional a group they are." Ward remembers attending a delegation meeting on the sewer crisis "and it was an absolute disaster," he told those at the forum. By and large, the county legislative delegation has been an absolute disaster, on issues from the county's financial problems, to its failure to fund an adequate regional transit system, to its lack of strong support for UAB, this region's most powerful economic engine. If Johns is right -- and we think he is -- the business community must full-court press the legislative delegation to approve a replacement occupational tax and get the county government's general fund back on firm financial footing. That full-court press should include civic leaders, but also citizens who want to see this region move forward. As Birmingham City Council President Roderick Royal put it, "because if you save the county, you save the cities and you save the region." That really is no understatement. A cash-starved county government that struggles to provide services to its residents (absurdly long lines for car tags continue) surely isn't what anyone should want for a modern urban community. Fighting for a replacement occupational tax was just one of many ideas tossed out in the forum, in which a group of 28 community leaders were asked, where do we go from here? Among the more promising ideas: • Do something, finally, about our community's transportation problems. That includes mass transit, which has been shamefully neglected, but also has to include highway improvements. Birmingham-Southern College President Charles Krulak pointed out that, with three interstate highways and two major railroad intermodal facilities, the metro area is a transportation hub. Why not strengthen and capitalize on that hub by making major improvements to the transportation system? • Krulak, a former Marine general, also said Birmingham needs to embrace its history. "This is the home not of civil rights -- this is the home of human rights," he said. Birmingham could be to human rights what Philadelphia is to Revolutionary War history, Krulak said. • Cultivate the area's urban farming scene. Drew Langloh, executive director of the United Way of Central Alabama, suggested creating a national institute for urban farming where people from around the country would come to learn. There is plenty of vacant land for microfarms in the heart of the city, or other areas. Plus, having thriving urban farms not only "creates a vibe in the community," he said, but they could supply fresh produce at farmers' markets, to chefs at Birmingham's growing number of fine restaurants and even school lunchrooms. • Bring Blueprint Birmingham, the BBA's five-year strategic growth plan, to fruition. The plan for the seven-county region aims to "provide abundant economic opportunities, excellence in education and an unparalleled quality of life for all its citizens." Its early priorities include creating a regional education partnership to improve poorly performing schools; boosting UAB's Research Foundation into a best-of-class organization; and finding a solution to the area's transit needs. The key to any and all of these ideas is not only to continue the conversation, but to move beyond talk to action. "Reinventing Our Community" grew out of almost 120 interviews that showed cautious optimism for our community's prospects. Over the past year, the series explored key leadership challenges such as rebuilding trust, moving beyond race, shrinking the disparity in our schools, growing civic and corporate leadership and harnessing the great potential at UAB. The way forward won't be easy, but it is time for our leaders to take the next step. Getting Jefferson County back on sound financial footing is a great place to start. © 2012 al.com. All rights reserved.

Sunday, January 22, 2012

Bham News: EDDIE LARD: Alabama lawmakers should pass a new occupational tax and let Jefferson County take the heat

EDDIE LARD: Alabama lawmakers should pass a new occupational tax and let Jefferson County take the heat Published: Sunday, January 22, 2012, 5:40 AM By Eddie Lard -- The Birmingham News The Jefferson County legislative delegation should pass a new county occupational tax and get out of the county's business. And stay out, unless called on by county officials for help. Restoring the tax won't fix all the county's problems. It can't, really. There's still this little matter of a $3.14 billion sewer debt the county can't repay and the county's filing of the largest government bankruptcy in U.S. history. But it isn't the Legislature's job to fix all that ails the county. That's the job of the County Commission, elected by county voters to run the county government. What the Legislature can and should do is give the commission the tools it needs to govern the county. The most obvious tool county officials need is enough revenue to pay for county services. The commission doesn't have enough revenue now to operate efficiently and effectively because the Legislature meddled in county business in the 1990s and fouled up the occupational tax, leading to courts striking it down. Lawmakers argued at the time they knew as well as the County Commission how county tax dollars should be spent. Well, we see how well that has worked out. You better pack a lunch if you need to go to the courthouse for a car tag. Get used to dodging potholes on county roads. And how many inmates can the sheriff cram into the main jail in Birmingham -- while the recently renovated Bessemer jail sits empty -- before the federal government puts an end to the foolishness and orders the county to move or release many of those inmates? Now, to think the legislative delegation -- splintered by partisanship, race and locale -- can even come close to agreeing on a rational plan for how county tax dollars should be divvied up is lunacy. Yet, some lawmakers want to tell the county how to spend the occupational tax, should it be restored. Others want to put new requirements on the county in how it operates in general. It's a we-know-best attitude. That's why it was refreshing to hear state Sen. Cam Ward say, following Thursday's "Reinventing Our Community" roundtable discussion at The Birmingham News, he thinks the best way for the Legislature to help the county is to give it more home rule. "If Jefferson County wants to do whatever tax they want to do, I may not personally like it," the Alabaster Republican said. "But they should be allowed to do that. More power should be vested locally, and not in the state government." Frankly, it's puzzling more lawmakers don't think that way, rather than trying to control the county and, really, micromanage its affairs. Why, for example, wouldn't lawmakers want to just simply give the County Commission the power it needs to manage county affairs and then wash their hands of the county's mess? If the commission screws up, that's the commission's fault and problem. Let commissioners explain it to voters. If voters aren't satisfied, they can elect a whole new bunch of commissioners. Voters in the last election showed they are willing to throw the bums out; that's why we have an all-new commission. But with the current predicament the county is in because of the lost occupational tax, lawmakers are directly to blame. I know most of them feel safe about their re-election come 2014 -- few incumbent lawmakers lose in a typical election year -- but why would they want to bear the burden and the heat of being responsible for Jefferson County's fate? Surely, lawmakers don't want their re-election to be a referendum on their handling of Jefferson County. Here's one other tidbit that should help lawmakers do the right thing on the occupational tax. During Thursday's roundtable talk, an informal poll of those following the discussion online found that two-thirds of them supported bringing back the tax. That's not scientific, of course, but it's in line with many of the comments we receive and informal online polls the editorial page has conducted. The bottom line is lawmakers have political cover for authorizing a new occupational tax. Plus, they can always say: Don't blame us if you don't like the tax; blame the commissioners. We just gave them the power; they are the ones who are taxing you. Plausible deniability. A winning strategy. Eddie Lard is an editorial writer for The News. Email: elard@bhamnews.com. © 2012 al.com. All rights reserved.

Friday, January 20, 2012

Bloomberg: Jefferson County Creditors Appeal Ruling on Sewer Receiver

By Steven Church - Jan 20, 2012 Creditors of Jefferson County, Alabama (STOAL1), appealed a ruling that revoked the power of a receiver who had run an insolvent sewer system on behalf of bondholders before the county filed the biggest U.S. municipal bankruptcy. Bank of New York Mellon Corp., acting as trustee for sewer bondholders, filed a notice of appeal today in U.S. Bankruptcy Court in Birmingham, Alabama. The trustee now has 14 days to explain why it thinks the ruling was incorrect, Bank of New York’s attorney, Larry B. Childs, said in an interview. “I would expect other parties in the case will also be filing today,” he said. The bankruptcy was filed after the county, state officials, the receiver and bondholders failed to implement an agreement to cut the sewer debt by about $1 billion, increase rates and obtain help for the county from the Alabama Legislature. County officials and the trustee for bondholders are in talks on how much of the sewer system’s revenue must be turned over to bondholders. The system doesn’t generate enough money to cover the sewer warrants, according to court records. The ruling effectively ended the control of John S. Young Jr. over the sewer system, which is owned by the county. Young was appointed to run it by a state court judge a year before the county filed bankruptcy. Young also appealed the ruling, along with creditors Bank of America NA and Assured Guaranty Municipal Corp. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net. To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net.

Thursday, January 19, 2012

Bloomberg Businessweek: Jefferson County Judge Strikes Reference to ‘Statutory Lien’

By Steven Church (Updates with judge’s comments in third paragraph.) Jan. 19 (Bloomberg) -- The judge overseeing the bankruptcy of Jefferson County, Alabama, said he didn’t intend to protect its defaulted sewer bonds with a “statutory lien” in his ruling regarding the county’s insolvent sewer system. U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham said in a court hearing today that a footnote saying the sewer debt was “secured by a statutory lien,” was a word-processing error that he will fix. “I probably should have taken it out,” Bennett said. “I left it there as a placeholder so I didn’t have to move all the numbers about. It is not intended to address the issue that you were concerned about.” Bennett was responding to a request by Jefferson County to clarify the footnote. The county argued that granting bondholders a statutory lien could affect the bankruptcy case and any appeal filed by creditors. In bankruptcy different types of liens grant creditors distinct levels of protection. County officials and the trustee for bondholders are in talks about how much of the sewer system’s revenue must be turned over to bondholders. The system doesn’t generate enough money to cover the sewer warrants, according to court records. Not Impeding Talks David Lemke, an attorney for the bondholders’ trustee, Bank of New York Mellon Corp., said the footnote was not impeding talks about the sewer revenue. Jefferson County filed for bankruptcy in November, more than a year after a state court gave control of the sewer system to John S. Young Jr., a receiver representing bondholders who own the sewer warrants. Bennett ruled that the county’s bankruptcy ended Young’s power over the system. The county is now in the process of resuming control. The bankruptcy was filed after the county, state officials, the receiver and bondholders failed to implement an agreement to cut the sewer debt by about $1 billion, raise rates and win financial support from the Alabama Legislature. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). --Editors: Fred Strasser, Peter Blumberg To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net. To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net.

Wednesday, January 18, 2012

San Francisco Chronicle: Bankruptcy Imperils Sewer Debt's 20-Year Win Streak: Muni Credit

Bankruptcy Imperils Sewer Debt's 20-Year Win Streak: Muni Credit Romy Varghese, ©2012 Bloomberg News Wednesday, January 18, 2012 Jan. 18 (Bloomberg) -- A federal judge's ruling in Jefferson County's record bankruptcy threatens water and sewer bonds, which have beaten the $3.7 trillion municipal market for more than 20 years. The revenue debt produced annualized returns of 6.9 percent since 1989 through last year, according to Bank of America Merrill Lynch indexes tracking prices and interest income, more than the 6.7 percent for the overall municipal market. Water and sewer bonds outperformed as the user fees backing the debt withstood the longest recession since the 1930s. Bonds where bankruptcy is possible may see a "slight cheapening" after the receiver acting for Jefferson County sewer-system bondholders was denied the power to set rates on Jan. 7, said Matt Fabian, a managing director at Municipal Market Advisors. "People will be less willing to take a chance on an issuer considering bankruptcy because of this," Fabian said in a telephone interview from Westport, Connecticut. More than $3 billion of Detroit water and sewer revenue bonds are on review for possible downgrade by Moody's Investors Service because of the risk of a city bankruptcy, the New York- based company said in a December report. Detroit may run out of cash by April and faces a possible state financial takeover as Mayor Dave Bing and council members disagree on ways to close a $155 million deficit. Wider Spread The city sold water bonds rated A1 by Moody's the week of Dec. 12. The difference in yield between a security due in July 2031 and an index of top-rated 20-year tax-exempts widened to 1.49 percentage points yesterday from as low as 1.32 percentage points on Jan. 10, according to data compiled by Bloomberg. Water bonds earned 11.4 percent last year, according to the Merrill Lynch indexes. That's more than the 11.2 percent for the full market, the 10.6 percent of state and local general- obligation debt and the 9.8 percent of Treasuries. "It is viewed as a very secure, essential-service sector," said Daniel Solender, head of municipal bonds at Lord Abbett & Co. in Jersey City, New Jersey. U.S. Bankruptcy Judge Thomas B. Bennett, ruling in Birmingham, Alabama, said the court-appointed receiver in Jefferson County's Chapter 9 filing, John S. Young Jr., can continue paying bondholders owed more than $3 billion while staying payments to other creditors. He gave rate-setting authority to county officials, who had resisted an increase of as much as 25 percent proposed by Young and creditors including JPMorgan Chase & Co. before the Nov. 9 filing. Rate Covenant "This contradicts the market's understanding of the rate covenant, which has historically been interpreted as an ironclad promise to raise fees to a level sufficient to service debt," Morgan Stanley analyst Michael Zezas said in a Jan. 10 report. Government officials, when dealing with bonds in bankruptcy situations, are "incentivized to interpret them in a broader social, but less credit-friendly, manner," said Zezas. Jefferson County, not a receiver working for creditors, should control rates, said David Hooks, chief of staff to Commissioner Jimmie Stephens. "The county wants to make sure that rates are at a level that are reasonable and fair, but yet supports a reasonable level of debt service," Hooks said in an interview Nov. 22. When evaluating water or sewer debt, Lyle Fitterer, who helps oversee $28 billion of munis for Wells Capital Management in Menomonee Falls, Wisconsin, first weighs credit fundamentals such as rate structure, water supply and government regulations. Few Situations Fitterer then considers the Jefferson County ruling, he said in a telephone interview. "If you look around the country," he said, "very few of these situations exist." Less than 1 percent of water and sewer debt rated by Moody's is non-investment grade, said David Jacobson, a spokesman. The judge's Jefferson County ruling may limit the power of receivers in future bankruptcies involving municipal utilities, said UBS analysts led by Tom McLoughlin. "It preempts the ability of a court-appointed receiver to assume financial control of a municipal utility in the rare instance of a municipal bankruptcy," said McLoughlin. Following are descriptions of pending sales of municipal bonds: MASSACHUSETTS, with the second-highest per-capita income of U.S. states, plans to sell $463 million of general-obligation bonds as soon as today for refunding and capital projects. Rates will be variable and based on a Securities Industry and Financial Markets Association index. The transaction is rated Aa1, Moody's second-highest grade. Citigroup Inc. will lead banks on the sale. (Added Jan. 18) PORT AUTHORITY OF NEW YORK AND NEW JERSEY, which oversees redevelopment of the World Trade Center site, will borrow $400 million of tax-exempt debt as soon as today for capital projects. The debt will mature from 2030 to 2041, according to sale documents. The bonds are rated Aa2, Moody's third-highest investment grade. (Added Jan. 18) CALIFORNIA HEALTH FACILITIES FINANCING AUTHORITY plans to issue $175 million of revenue bonds as soon as today. Proceeds will finance expansion and upgrades for Scripps Health, a nonprofit corporation with four hospitals in San Diego County. JPMorgan is the underwriter. The bonds are rated AA-, Standard & Poor's fourth-highest investment grade. (Added Jan. 18) --With assistance from Steven Church in Wilmington, Delaware, and Martin Z. Braun and Michelle Kaske in New York. Editors: Jerry Hart, Ted Bunker To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/01/18/bloomberg_articlesLXQVVN07SXKX01-LXYWA.DTL © 2012 Hearst Communications Inc. | Privacy Policy | Feedback | RSS Feeds | FAQ | Site Index | Contact

Wednesday, January 18, 2012

Bloomberg: Cow Corpse Embodies Carrion Crisis in Alabama’s Bankrupt Jefferson County

Cow Corpse Embodies Carrion Crisis in Alabama’s Bankrupt Jefferson County By Gigi Douban - Jan 18, 2012 The call about the dead cow came in about 4 p.m., followed by an e-mailed photo of the unfortunate bovine on a roadside near Mulga, a town of 836 in bankrupt Jefferson County (3681MF), Alabama. Wayne Sullivan, director of roads and transportation, wanted County Manager Tony Petelos to tell him what to do. Residents had been complaining for days. Still, it was late on Dec. 9, a Friday, and cow removal would cost overtime, Sullivan told Petelos. So Petelos decided, “What’s another weekend?” Such is life since the state’s most populous county began scrapping services to fill a $40 million budget hole, the result of a record U.S. municipal bankruptcy. Jefferson County filed after officials and holders of $3.2 billion in sewer- rehabilitation debt failed to agree to cut the obligation by about $1 billion, increase rates and obligate the Alabama Legislature to bolster the county’s finances. As a federal court sorts out the collapse, services and citizens suffer -- even as the county that encompasses Birmingham has spent $22.1 million on lawyers. The jail is overcrowded and lacks toilet paper, linens and clothing. The Sheriff’s Department faces “dramatic” cuts, said Petelos, 58, who since October has been the county’s first professional manager. There have been leg-numbing lines to renew car license plates, the closing of satellite courthouses in the 1,124-square mile (2,911-square-kilometer) jurisdiction and now the burgeoning carrion crisis. Help From Buzzards When county residents call about roadkill, they’re told the same thing: We’re not picking up dead animals anymore. “We used to do that all the time,” said Sullivan. “Every time we got a call, we responded.” That was before Sullivan’s department went from 650 employees to fewer than 200. Animals on the roadbed aren’t a hazard, Sullivan said: “Just because it smells and is in the ditch, that’s not something we’re going to focus on.” The cow was different. “It was huge,” Petelos said. “It looked like a horse.” And it was decomposing. “It had gotten to the point where it was a health hazard.” From now on, small animals such as raccoons, opossums, armadillos and dogs will be left to lie. “We have to let nature take its course,” Petelos said. “After they’re run over two and three times, the buzzards will come in and take over.” To contact the reporter on this story: Gigi Douban in Birmingham at gigidouban@gmail.com. ®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Tuesday, January 17, 2012

Bham News: OUR VIEW: More than Jefferson County is held hostage by budget cuts that leave tax checks unopened

OUR VIEW: More than Jefferson County is held hostage by budget cuts that leave tax checks unopened Published: Tuesday, January 17, 2012, 5:45 AM Updated: Tuesday, January 17, 2012, 9:49 AM By Birmingham News editorial board Jefferson County is being held hostage by the Alabama Legislature. The state's most populous county is in Chapter 9 bankruptcy, driven there mostly by its $3.14 billion sewer debt. And its general fund is in shambles, courtesy of the county's meddling legislative delegation. The county needs help on both fronts from the Legislature, which has taken foot-dragging to a new level. But the county isn't the only one being held hostage by the county's financial distress and the Legislature's inaction. So, too, are county residents who must endure hours-long lines in the courthouse to get car tags, overcrowded jails and, as reported Friday in The Birmingham News, even a cow carcass rotting on the side of the road because the county's road department laid off so many of its workers it no longer has the manpower to remove the animal. And then there are the cities, towns, school boards and fire districts in the county that depend on tax dollars collected and distributed by the county. They are hostage to a shrunken county government that doesn't even have the manpower to open and deposit tax checks mailed to the county. As News staff writer Barnett Wright recently reported, staffing cuts in the county tax collector's office mean there's nearly $100 million in unopened and undeposited property tax checks sitting in a locked office in the county courthouse. "We used to have 40-something employees, and now we're down to 17," Tax Collector J.T. Smallwood told Wright. The backlog in processing the tax checks means school systems and other governments have to wait for the money they need to operate. And with checks sitting in an office rather than in bank accounts, the county forgoes any interest on that money it could be earning. That's not the only way county residents are being shortchanged by the shortage of manpower in the tax collector's office. Remember, that office collects taxes -- including from delinquent payers. But four of the office's tax agents whose job it is to collect delinquent taxes were laid off. In 2010, tax agents brought in $3.4 million in delinquent taxes; for 2011, so far, agents have collected only $738,157, according to county records. This is an embarrassing episode for Jefferson County. Getting rid of employees is actually costing the county money; maybe more than the county is saving by the tax collector's staff reduction. Worse, the county comes off looking incompetent. If it can't even open the checks taxpayers send in, what does that say about county officials' ability to manage the county's operations and essential services? Somehow, county commissioners, county department heads and County Manager Tony Petelos must figure out how to get the backlog of checks opened and processed and the tax dollars distributed to the school systems and other entities for which the money was intended. Smallwood said a few employees are being transferred from other departments to help with the tax mail, but those workers will need to be trained. He also said technology -- a remittance processing system -- would speed up the process, but buying such a system will cost money the county doesn't want to spend. This, however, is a matter of priority. The county has to put in place both the manpower and the technology to collect the money that helps pays the bills for both the county and other governments. County officials say they saw this coming, and warned lawmakers. "The entire scenario has played just as anticipated," said Commissioner Jimmie Stephens. And, yet, nothing was done to head it off. Certainly, lawmakers, who undermined the county's occupational tax, creating the general fund crisis, are at fault for not fixing the mess they created. They should simply enact a new occupational tax. But county officials come off looking bad, too. Is letting $100 million in tax checks sit unopened really the best they can do? Cash the checks and free at least some of the hostages. © 2012 al.com. All rights reserved.

Tuesday, January 10, 2012

Bham News: Commissioner George Bowman: Jefferson County has spent $30 million in legal fees over past five years

BIRMINGHAM, Ala. -- Jefferson County Commissioner George Bowman said today that the county has spent $30 million on legal fees in the past five years. Bowman said some of that money could have been used to keep some of the hundreds of employees who were laid off last year. A review of documents from the county's Budget Management Office shows that some of the money was spent by other county departments and agencies over which the County Commission has no control. For example, some of the money went to law firms representing the Jefferson County Personnel Board and the sheriff's office, which are funded by the county but hire their own lawyers. Most of the money has been spent in an attempt to find a solution to the county's sewer debt crisis and other sewer department-related legal work. Birmingham-based Bradley Arant Boult Cummings topped the list with $9.6 million in payments from the county since October 2006. Commission President David Carrington said the legal payments were an "investment" because the firms reached agreements that earned the county millions of dollars in legal settlements such as the $75 million from JPMorgan Chase & Co. in a U.S. Securities and Exchange Commission settlement. Bowman said that money was the result of a fine and the county would have gotten that cash anyway.

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Monday, January 09, 2012

Bham News: Jefferson County takes control over sewers

Jefferson County takes control over sewers Published: Monday, January 09, 2012, 6:30 AM By Barnett Wright -- The Birmingham News View full size BIRMINGHAM, Alabama -- The Jefferson County Commission won authority over the county's sewer system in a bankruptcy judge's ruling last week -- along with a directive that commissioners now have responsibility for figuring out how to raise the system's revenues. And if the five-member commission doesn't find ways to raise money -- through the first rate increases since 2008 or other means -- Judge Thomas M. Bennett warned that he could turn control of the system back over to John S. Young Jr., the state-court appointed sewer receiver. That means that today, commissioners and County Manager Tony Petelos will begin discussions over what to do with the sewer system it has regained control over for the first time since Young was appointed in September 2010. Bennett ruled on Friday that Jefferson County's record-setting bankruptcy meant that Young no longer had autonomous authority over the sewer system, and could no longer impose rate increases at any time he chose. Though he continues as receiver appointed by a state circuit court judge, just what role Young maintains was not clear in Bennett's ruling. Also, unclear is whether Young will appeal the ruling. President David Carrington said the commission will today hold "a lot of serious conversations" about moving the sewer department forward. "We have to consider rate increases, but we haven't done our rate study, and we haven't done our cost of service study," Carrington said. "It's naive to think that we're not going to have some increases for operating increases and capital projects. To say there is going to be no increases for 40 years is not responsible." There have been no sewer increases in Jefferson County since 2008. Bennett wrote in his ruling that the county must take steps to maintain the system and address other concerns "including appropriate revenue enhancements, be it by a rate increase or by some other manner." Bennett said the sewer system's net revenues will continue to be paid out to bondholders owed $3.14 billion. Young in the wings If the commission doesn't operate the system responsibly, there is a chance that Young could regain control of the system from the county. "Down the road, if the County Commission doesn't make reasonable rate increases then the receiver might be granted relief from the automatic stay so as to raise rates," said Michael Floyd, a Samford University law professor, who has closely followed Jefferson County's sewer debt crisis. Beginning today a number of issues between county officials and David Denard, who is director of the sewer system, are likely to be discussed. Petelos said he has a meeting scheduled early today with Denard to "develop a game plan working with the county commission to see exactly what we need to do." Carrington is the commission's liaison to the environmental services department. "I would be requesting that Mr. Petelos and Mr. Denard give serious consideration to adding a business manager or financial manager," Carrington said. "Dave is the engineering guy. I would recommend we hire somebody on the business side in conjunction with him to address the financial issues of the system. "If we need to help David with a financial person, or with some engineering assistance or third party. I am prepared to do it." 'Good, clean system' Carrington said he plans to also suggest a visit with the U.S. Environmental Protection Agency. "We're going to run a good, clean system," Carrington said. "One of the first things I'd recommend to Tony and David is go visit with the EPA again now that we are back in control." Floyd said the ruling signals a "new day" in Jefferson County. "This county commission is clearly different than previous county commissions so they are going to get the opportunity to make those difficult decisions, and they've shown willingness to do that," Floyd said. Rate increases? Bennett noted in his ruling the commission's willingness to consider "unpopular stances and undertake certain actions that might be contrary to their best political interests." Those included rate increases of up to 8.2 percent a year for three years and no more than 3.25 percent a year afterward as part of a settlement agreement with creditors, Bennett noted. The judge in his order noted that creditors initially wanted much more than called for in the eventual proposed settlement agreement, which was never executed. "This is despite the fact that the average sewer rates increased over 300 percent since 1997 and would increase by a further 527 percent based on rates desired by the indenture trustee," Bennett wrote, referring to The Bank of New York Mellon. "These sorts of increases would take the average monthly residential sewer bill of $63 per month up to above $360 per month under the indenture trustee's wishes." According to Young, the average sewer bill is about $37.74 a month. Receiver's legacy Bennett's ruling also contained kind words for Young. "There is no doubt that the receiver has done a far better job overseeing the running of the county's sewer system than former commissioners," the judge wrote. "Lost revenues have been recaptured. Excess employees have been eliminated. Up-to-date accounting records have been prepared. "If not eliminated, inappropriate expenditures have been reduced. Better maintenance, repair and capital improvement practices have been developed along with ongoing, continuous education programs for sewer system employees," the judge wrote. Carrington acknowledged the work done by Young and said his receiver's report could serve as a "game plan" to continue improvements being made to the system. Efforts to reach Young for comment were unsuccessful. Join the conversation by clicking to comment or email Wright at bwright@bhamnews.com. © 2012 al.com. All rights reserved.

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Monday, January 09, 2012

Reuters: Jefferson County bankruptcy another Alabama "punt"

Jefferson County bankruptcy another Alabama "punt" » Print This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to colleagues, clients or customers, use the Reprints tool at the top of any article or visit: www.reutersreprints.com. Can revenue bondholders relax now? January 9, 2012 @ 3:16 pm By Cate Long Bond markets generally focus on who has rights to specific cash flows and control over assets. That was what Alabama federal bankruptcy court Judge Thomas Bennett was addressing when he issued an opinion [1] Friday afternoon covering the insolvent Jefferson County sewer system. To recap the situation in Jefferson County, re-read what I wrote in November [2]: Last year, amid the county’s fiscal and political meltdown, the Russell County Circuit Court appointed a water system professional [3], John Young, to take over the management and operation of the sewer system. This action came at the request of the bond indenture trustee, the Bank of New York, which wanted the bond payments protected. Now the county is fighting with the receiver and creditors for control of the sewer system in bankruptcy court. The crux of Judge Bennett’s ruling related to whether the sewer receiver, John Young, could keep control of Jefferson County’s most important asset, the sewer system, while the county was trying to consolidate its assets in the bankruptcy process. Bank of New York and other bondholders argued that the federal bankruptcy proceeding could not trump judicial actions taken at the local level. In other words BoNY, representing bondholders, wanted to keep the control of the sewer system and its cash flows. Although revenue bondholders have a lien, or right, to the cash flows of the sewer system, they also wanted control of the asset. Judge Bennett, in his ruling, confirmed the right of bondholders to receive the revenue payments they are due from the sewer system. This will make the municipal markets cheer because it confirms an important plank of the system. On the other hand, the judge also ruled that control of the sewer system must be returned to Jefferson County. Bondholders would have preferred to keep control of this asset, which was collateral for the bonds. Chapter 9 municipal bankruptcy cases are rare and market players closely watch the outcomes. The judge made a sound ruling today and the case will grind on. Jefferson County is not yet out of the woods but the path is becoming a little clearer. Kind thanks to the Birmingham News [4] for posting Judge Bennett’s order. © Thomson Reuters 2011. All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to colleagues, clients or customers, use the Reprints tool at the top of any article or visit: www.reutersreprints.com.

Sunday, January 08, 2012

Bham News: Jefferson County has nearly $100 million in unopened property tax checks (video)

Jefferson County has nearly $100 million in unopened property tax checks (video) Published: Sunday, January 08, 2012, 7:00 AM Updated: Sunday, January 08, 2012, 7:13 AM By Barnett Wright -- The Birmingham News Jefferson County Tax Collector J.T. Smallwood goes through about 40 trays of unopened envelopes containing checks for business and property taxes in the tax collector's office. Smallwood said because of cuts in his staff, he does not have the manpower to quickly process and deposit the checks. (The Birmingham News/Joe Songer). BIRMINGHAM, Ala. -- Jefferson County has nearly $100 million of unopened and undeposited property tax checks sitting behind a locked door at the courthouse because not enough workers are on staff to open the mail, the county tax collector said. "There are millions of dollars laying in that locked office waiting to be processed," said Tax Collector J.T. Smallwood, pointing to an office on the first floor of the downtown courthouse. "There are 45 mail flats and bins with unopened mail locked in an office. We have only four or five processors. The manpower and the work don't match up." Smallwood said his staff, which has been devastated by budget cuts and the county hiring freeze, has not been able to keep up with the flood of tax payments that pour in at the end of the year. "We used to have 40-something employees and now we're down to 17," Smallwood said. "There is a huge demand on our employees. We have people doing two, three different jobs. We still have to do our regular accounting functions that have to be done properly. We still have to do our notices. We still have to answer a host of constituents' calls and letters every single day. It never stops." The logjam affects every government and school system in Alabama's most populous county. Commissioner Jimmie Stephens said residents, elected officials and lawmakers were warned last year that funding cuts would adversely affect county services. "Everyone had plenty of warning that this was indeed going to happen," Stephens said. "The entire scenario has played just as anticipated. And you have to understand that we collect and distribute funds for all the municipalities and all the school districts within the county." Smallwood called his office "the collection arm for this region," which means the problems are more widespread than just a county funding issue. "We remit funds to the whole state," he said. "Fire districts, police departments, school districts. We collect money for the health department, transit, stormwater. They'll get their money. It'll just be a delay." Swamped Out of about $558 million in expected 2011 property tax payments, the tax collector had processed only about $238 million as of Friday. The backlog in processing mail is just partly to blame for the delay in some revenue collections, officials said. Among cuts to the tax collector's office, the county laid off four tax agents, saving approximately $180,000 a year in salaries and benefits. But those positions were dedicated to collecting delinquent taxes -- getting money from people who often don't want to pay -- and the loss of those jobs has cost the county about $2.7 million in revenues, county records show. In fiscal 2010, tax agents who perform field collections brought in $3.4 million. In fiscal 2011, so far, $738,157 has been received from field collections, according to county records. The amount is expected to increase by collecting through other means, Smallwood said. Jefferson County Tax Collector J.T. Smallwood with thousands of unprocessed tax checks Stephens said he was aware of the problem, but the commission's hands have been tied by the lack of money. "This is one of the problem areas that hurts all of the citizens in the county," he said. "The tax collector is shorthanded and he doesn't have any capital in the budget in order to make those changes." Smallwood said the office has been swamped with calls from residents asking why their checks haven't been deposited. "We've had a host of calls asking, 'when will my check clear?'" Smallwood said. "I want the check to clear the moment it comes in, but it's not feasible with the staff and resources that we presently have. We have to go through every bin and manually extract the bill, we have to take it out, we have to write on the check the bill number, makes sure it matches and add it up." Some residents have stopped payment on their checks because the county has yet to deposit the money, he said. "We try to cash it, it comes back to us stopped and we have to stop what we're doing and rebill," Smallwood said. "It just takes a lot of (additional) man hours." The county's problems are well documented. Its occupational tax, which generated $66 million in fiscal 2010, was thrown out last year by the Alabama Supreme Court because of a technical defect in how the state Legislature enacted it. To make up for lost revenue the commission closed satellite courthouses, laid off hundreds of workers and curtailed services. Smallwood said the closing of satellite courthouses in Homewood, Center Point and Forestdale has compounded the problem in his office. "All of that volume is now sent downtown," Smallwood said. "We've been working until 10 or 11 at night and on Saturdays." Technical needs Smallwood said the office lacks technology to get the work done quickly. Buying a remittance processing system would help, he said. "I've been trying to get one for years. The remittance system captures the image of the check (and) deposits the money immediately. "If the money was deposited, we could do quicker remittances, faster remittances to the entities that we remit to, like the school districts. We do distributions on the first and 15th of every month," he said. "Also, think of the interest we are missing on the money because it's not being deposited. There is not significant interest nowadays because banks aren't paying any interest, but still every penny adds up." Even though it would cost to buy and maintain the system, "it would have paid for itself in no time," Smallwood said. The county's online presence is small. Residents who pay their taxes online are charged a convenience fee for each transaction, and most prefer to mail in the checks and skip the fee. The county at one time absorbed the $250,000 annual cost, but that was deemed too expensive, so it instituted the convenience fee, the amount of which varies with the amount of the property tax. "There is no solution out there that is free," Smallwood said. "I would love to have a larger online presence to transact business, but as long we are contractually obligated to go with that fee structure, I don't envision us increasing those numbers." The county does between $20 million and $30 million of business a year online, he said. Help on way Assistance is on the way, Smallwood said. The county temporarily is shifting five people from the Board of Equalization and one from the revenue department to help in the tax collector's office, Smallwood said. "The problem is we have to train them," he said. "We have to refresh their skill set on how to do it." Stephens said borrowing workers from other departments can create another set of problems. "We are so short-handed in all departments, it's difficult to pull from those," he said. Stephens said the problems could worsen countywide without replacement revenue from lawmakers who go into session next month. Some legislators have resisted proposals to replace the defunct job tax. Those proposals have included unearmarking existing tax money, creating a new occupational tax or giving commissioners authority to increase a variety of taxes to raise the needed revenue. Commissioners have said the county government needs additional revenue to avoid being forced to cut an additional $40 million from a 2012 general fund budget that stands at $217.8 million. That budget already is $94.6 million leaner than the one approved the previous year. Smallwood said he shudders when he hears additional reductions are being planned. "Any further cuts to this office will be counterproductive to the county and the region at large," Smallwood said. "It will impact personal property collections and business collections. It will impact every area. You can't cut a revenue-producing department. If you do, you may win in the short term, but in the long term we all lose." Join the conversation by clicking to comment or email Barnett Wright at bwright@bhamnews.com. © 2012 al.com. All rights reserved.

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Thursday, January 05, 2012

Bloomberg News: Alabama Sheriff Can’t Halt Lawsuits, Bankruptcy Judge Rules

Alabama Sheriff Can’t Halt Lawsuits, Bankruptcy Judge Rules By Steven Church - Jan 5, 2012 The sheriff of Jefferson County, Alabama, and his deputies can’t temporarily avoid lawsuits as a result of the county’s bankruptcy, a judge ruled. U.S. Bankruptcy Judge Thomas B. Bennett said civil rights and other suits against Sheriff Mike Hale may proceed so long as the plaintiffs understand they won’t collect any money from the county while it’s in bankruptcy. The sheriff’s department is funded by the county, which may be forced to pay the sheriff’s legal bills. Plaintiffs who win a judgment against the sheriff will have to return to court for a separate ruling after the bankruptcy is over to collect any money from the county, Bennett said. “Why would you want to go forward if you have to come back and re-litigate,” Bennett asked lawyers for a group of people suing the sheriff’s department? Jefferson County filed bankruptcy last year after the county, state officials and bondholders failed to implement a tentative agreement that would have cut debt by about $1 billion. Hale asked Bennett to determine whether the sheriff’s department is entitled to the so-called automatic stay of lawsuits granted the county when it filed bankruptcy in November. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net. ®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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Thursday, January 05, 2012

Birmingham News: Jefferson County bankruptcy hearings resuming

Jefferson County bankruptcy hearings resuming Published: Thursday, January 05, 2012, 6:30 AM Updated: Thursday, January 05, 2012, 6:55 AM By Barnett Wright -- The Birmingham News BIRMINGHAM, Alabama -- Hearings on Jefferson County's record-setting Chapter 9 bankruptcy filing resume today, with U.S. Bankruptcy Judge Thomas Bennett scheduled to consider separate motions from the sheriff's office and from landlords who hold leases on the county's satellite courthouses. Late last month Bennett extended until Friday an automatic stay on all proceedings arising from the county's bankruptcy filing. That stay prompted filings from a number of individuals and entities, including Sheriff Mike Hale, who is asking whether suits against the sheriff and deputy sheriffs for actions taken in the course of their employment are included within the automatic stay. Bennett is also scheduled to hear motions from lawyers with pending lawsuits who want relief from the automatic stay to pursue claims against the sheriff's office and a pending voting rights lawsuit against the Jefferson County Election Commission, of which Hale is a member. Lawyers for the county have objected to the motions "to the extent they seek advisory opinions," they wrote in a filing, which argues that "any effort by any party to liquidate, assert or collect a claim or judgment from the county is stayed regardless of whether such effort is initiated by a judgment creditor or judgment debtor." Also scheduled for hearings are various motions from landlords with leases on county courthouses. Last month, the cash-strapped county voted to end -- legally, "reject" -- unexpired leases in Homewood, Forestdale and Gardendale to save about $600,000. A landlord for the Homewood satellite courthouse said in a court filing Friday that various motions to dismiss the county's bankruptcy petition are pending before the bankruptcy judge, and if the petition is dismissed the county will have "no right to unilaterally terminate the lease." Lawyers for other landlords have also challenged the county's request to end the leases, and those cases are also on today's schedule. Two other much-discussed legal issues are not on today's agenda. Lawyers for John S. Young, the court-appointed receiver over the county sewer system, have challenged some of the county's positions, including its request to have Young removed. The other matter is whether the county is eligible for bankruptcy. Bennett has said he could rule on the Young matter by midnight Friday. Regarding the eligibility issue, Bennett asked lawyers for the county and its creditors to submit suggested questions for him to ask the Alabama Supreme Court, should he choose to do so. The challengers contend the county cannot file for bankruptcy under Alabama law because it does not have any outstanding bond debt. Jefferson County has amassed its debt through bond-like instruments called warrants. But the county contends it can legitimately seek Chapter 9 protection because it had issued bonds in the past and commissioners had approved a resolution in July contemplating the need for future bond sales. Lawyers for the Bank of New York Mellon, which represents the county's warrant holders, want the bankruptcy judge to ask the Alabama Supreme Court whether the county must have outstanding bond debt to file bankruptcy. They also seek clarification on what effect past county bond sales or commissioners' stated plans to sell bonds in the future would have on the county's right to seek protection from creditors. The state high court is considering a similar issue regarding a bankruptcy petition filed by the town of Prichard. Join the conversation by clicking to comment or email Wright at bwright@bhamnews.com. © 2012 al.com. All rights reserved.

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Thursday, January 05, 2012

Bham News: OUR VIEW: With at least 114 lawyers on the case, the nation's largest-ever government bankruptcy is almost certain to also be one of the most expensive

OUR VIEW: With at least 114 lawyers on the case, the nation's largest-ever government bankruptcy is almost certain to also be one of the most expensive Published: Thursday, January 05, 2012, 8:34 AM Updated: Thursday, January 05, 2012, 8:38 AM By Birmingham News editorial board Bankruptcy expert Kenneth Klee is being paid $975 an hour by Jefferson County officials to advise them during their Chapter 9 proceedings. That's a handsome sum. But one lawyer does not a bankruptcy make. Neither do a dozen, when the bankruptcy is the largest government bankruptcy in U.S. history. One hundred lawyers isn't even enough, in the case of Jefferson County and the more than 4,000 creditors with skin in the game. Try 114 lawyers, representing the county, creditors and other parties, such as the U.S. Securities and Exchange Commission and the state court-appointed receiver over the sewer system, John S. Young. And even more lawyers are expected to join the ranks as the bankruptcy proceeds and attorneys are appointed to represent unsecured creditors and everyone else who is owed money by the county. There are so many lawyers that U.S. Bankruptcy Judge Thomas Bennett apologized "for the space limitations" after moving into temporary space because of renovations to the Robert Vance Federal Courthouse. Some lawyers listened in by phone. For anyone wondering why county officials estimate the county's legal costs during bankruptcy will top $1 million a month, all he needs consider is the number of lawyers. Fifteen of the 114 on the case are representing the county. County taxpayers and sewer ratepayers must hope the bankruptcy doesn't drag out two, three or even more years. But they shouldn't expect any miracles along the way. It's highly unlikely that whatever plan to repay creditors that emerges from bankruptcy won't include sewer rate increases. That's a bitter pill for ratepayers, who already have seen rates go up 329 percent since 1996, but bankruptcy isn't a get-out-of-jail-free card for the county or sewer customers. The county owes sewer creditors $3.14 billion. It owes other creditors more than $1 billion. Most of that money will have to be repaid. The federal bankruptcy judge isn't likely to approve a repayment plan that lets the county off the hook without paying what it can afford. Sure, some of the sewer debt is likely to be marked down. But it's impossible to know at this time whether the debt to be forgiven will be significantly more than the $1 billion-plus that creditors had offered to write off when it looked like they and the county had reached a settlement. That deal fell apart after it became clear state lawmakers were far from a consensus on whether they would pass bills necessary for the settlement to work. Legislation was needed to set up an independent authority to run the sewer system, make the state a guarantor of new sewer bonds and replace county tax dollars that were lost when courts struck down the county's occupational tax. A bankruptcy repayment plan could include some of those elements, so the Legislature's help is still needed. There are 140 Alabama lawmakers. It's conceivable the lawyers working Jefferson County's record-setting bankruptcy could outnumber them. How many lawyers does it take to get the Legislature to act? At what ultimate cost? We'll find out. © 2012 al.com. All rights reserved.

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Thursday, January 05, 2012

Bham News: Update: Jefferson County satellite courthouse leases rejected after ruling in U.S. Bankruptcy Court in Birmingham

Update: Jefferson County satellite courthouse leases rejected after ruling in U.S. Bankruptcy Court in Birmingham Published: Thursday, January 05, 2012, 11:22 AM Updated: Thursday, January 05, 2012, 12:07 PM By Russell Hubbard -- The Birmingham News Jefferson County has been down to one courthouse, the Birmingham main branch, since budget cuts forced the closure of three satellites, whose leases were terminated in a bankruptcy hearing today. (The Birmingham News/Tamika Moore) UPDATES WITH DETAIL ON SHERIFF'S STATUS IN FINAL PARAGRAPH. BIRMINGHAM, Alabama -- Jefferson County is out from under the leases for three shuttered satellite courthouses after a ruling in U.S. Bankruptcy Court in Birmingham. The ruling by Judge Thomas Bennett came today during the latest hearing in the Jefferson County bankruptcy case, filed in November after a massive default on sewer bonds. The hearing was called to deal with a series of collateral matters, such as the leases. No action was taken on the fate of court-appointed sewer receiver John S. Young, and none was taken on the county's legal eligibility to file for Chapter 9 protection. Eligibility, Bennett said during the hearing, will be "decided at some time in the future." County lawyer Patrick Darby told Bennett the county should be allowed to reject the leases on the Gardendale, Homewood and Forestdale courthouses. Darby said such lease rejections are allowed for under the "business judgment" clause of bankruptcy law. Bennett declined to offer an advisory ruling on the how or if the Jefferson County Sheriff's Office is affected by the automatic stay that freezes current lawsuits during the bankruptcy case. He said such decisions will have to be made on an individual basis after the sheriff or the suing party requests such guidance. © 2012 al.com. All rights reserved.

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Tuesday, January 03, 2012

Bham News: Jefferson County sewer overflows are big problem

Jefferson County sewer overflows are big problem Published: Tuesday, January 03, 2012, 6:00 AM Updated: Tuesday, January 03, 2012, 7:50 AM By Barnett Wright -- The Birmingham News A manhole cover in Railroad Park in Birmingham, Alabama, for the Jefferson County sewer system. (The Birmingham News) BIRMINGHAM, Alabama -- Jefferson County, after spending billions of dollars to improve its sewer system, had more than double the number of sanitary sewer overflows last year that the EPA says it should, sewer department officials said. "Last year we had about 300 overflows," said David Denard, director of the environmental services department. "We want to get as close as practical to zero." The U.S. Environmental Protection Agency suggests a benchmark of less than four SSOs per 100 miles of sewer pipe per year, Denard said. "Ours is about 10 SSOs per hundred miles of sewer per year," he said. The EPA has put an emphasis on reducing sanitary sewer overflows nationwide because they can contaminate drinking water supplies and cause other environmental and human health problems, according to the agency. Last month, an overflow of 281,600 gallons of sewage occurred downstream of Grant Avenue in southwest Birmingham and probably reached Valley Creek, sewer department officials said. Officials blamed sewer lines that were incapable of handling an overwhelming flow. "The No.1 priority is to get SSOs down" in Jefferson County, Denard said. "We are going to chase reducing the SSO number." Both Denard and John S. Young, the court-appointed receiver operating the sewer system, said reducing the overflows will take time and money. "This is not something you do in two years, and you're done," Young said. "This is something you do over a long period of time. You have to make capital expenditures that you need to do on a routine basis just to maintain where you are. "We need to spend $20 million to stay where we are, just to keep the lights on," he said. "You need to spend some money on top of that for special projects to address specific SSO issues. ... You need to focus on where your SSOs are. At the same time, you can't absolutely ignore the rest of the system." Denard said most of the overflows happen without rain, and much of the money will be spent cleaning the pipes. "The SSOs happen because pipes get clogged with grease or roots," he said. The county began a huge sewer restoration and rehabilitation program in 1994 after the Cahaba River Society and individuals successfully sued to show that the county was illegally polluting area creeks and rivers with untreated waste. The cost of fixing the system -- initially estimated at $1 billion -- mushroomed into a $3.2 billion project to rebuild and expand the system. Of the total amount, about $1 billion was spent on the pipes in the ground. The rest of the money was spent in several areas including sewer bond refinancing; a reserve fund for investments, future projects and emergencies; bond insurance; and professional fees to investment banks, attorneys and advisers. The sewer overflows are not the only challenge facing the sewer department. Leaks into the system is also a concern. Young testified during a November bankruptcy hearing that 60 percent of the water flowing through county sewer pipes to the treatment plants comes in through broken joints, leaky manhole covers and other flaws. Those leaks are about twice the industry norm, he has said. Despite that problem, the sewer overflows are the top priority, Young said. "Other places would be concerned not only about the SSOs but they'll be concerned about infiltration/inflow overwhelming their treatment plants," he said. "Here we have big treatment plants. You attack the SSOs first because the leakage into the pipes, you have enough capacity to treat." Join the conversation by clicking to comment or email Wright at bwright@bhamnews.com. © 2012 al.com. All rights reserved.

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Tuesday, January 03, 2012

Birmingham Business Journal: EPA: JeffCo sewer overflows more than double

Sewer department officials said Jefferson County had more than double the number of sanitary sewer overflows last year than the Environmental Protection Agency says it should. According to the Birmingham News, David Denard, director of the environmental services department, said there were approximately 300 overflows last year. The EPA has put an emphasis on reducing sanitary sewer overflows nationwide because the agency said they can contaminate drinking water supplies and cause other environmental and human health problems.

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Sunday, December 18, 2011

Bloomberg Businessweek: Alabama Sheriff Can’t Halt Lawsuits, Bankruptcy Judge Rules Jefferson County Judge May Seek Advice From Alabama High Court

Jefferson County Judge May Seek Advice From Alabama High Court By Steven Church Dec. 16 (Bloomberg) -- The federal judge overseeing Jefferson County’s bankruptcy is considering asking the Alabama Supreme Court for advice on whether to dismiss the biggest U.S. municipal bankruptcy. U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham said he may ask the state’s highest court how to interpret a state law that creditors claim bans Alabama counties from entering bankruptcy unless they have issued “refunding or funding bonds.” The answer he gets is likely to determine whether the county can remain in bankruptcy, lawyers told Bennett yesterday in court. At the end of that hearing, Bennett said he could not immediately rule on whether to dismiss the bankruptcy case as requested by investors who hold more than $3 billion worth of sewer warrants at the heart of the county’s financial troubles. Creditors including Bank of New York Mellon Corp. and JPMorgan Chase & Co. objected to the November filing. They claim Jefferson County doesn’t have any debt that is officially labeled as a bond; its bankruptcy was caused mainly by more than $3 billion in sewer warrants. One Alabama town, Prichard, had its bankruptcy petition thrown out because its debt didn’t include funding bonds, according to court papers. That case is on appeal to the Alabama Supreme Court. Bennett said it was his “inclination” to seek guidance from the Alabama Supreme Court by sending the justices a number of technical questions about state law. He said he would not make a decision before Christmas. Distinction, if Any “If the creditors are right, the outcome will turn on the distinction, if any, between bonds and warrants,” Dale Ginter, a lawyer who represented retired city workers in Vallejo, California’s bankruptcy, said in an e-mail. “Financial instruments are occasionally given different names -- even if the economic impact is the same.” Jefferson County contends that limiting the bankruptcy option in Alabama to municipalities with bonds is “absurd.” “Were the objectors’ argument the law, a county struggling to service $3 billion in bond debt would be authorized to declare bankruptcy, but a county struggling to pay the same $3 billion in warrant obligations would not,” the county argued in court papers filed Dec. 13. Bennett asked both sides to submit proposed questions for the Alabama Supreme Court on whether bond debt is required before a municipality can file for bankruptcy in the state. In Limbo A lawyer for BNY Mellon said that should Bennett send questions to the state court, he should dismiss the bankruptcy petition first. Allowing the case to continue while waiting for an answer from the state high court “leaves the parties in limbo,” David Lemke said in court. The county urged Bennett to allow it to stay under court protection should he send questions to the state justices. Bennett said that if he declines to seek advice and simply rules to allow or reject the bankruptcy, his decision may be appealed, causing more delay than sending so-called certified questions to the state Supreme Court. “At a minimum we’re facing one or two appeals rulings one way or another,” Bennett said in court yesterday. The hearing yesterday opened with county attorney Jeffrey Sewell saying that the county has spent about $10 million on legal related to the sewer debt since 2008. Later, David Carrington, president of the county commission, testified that the bankruptcy filing was necessary because the county was burning through $3 million in cash a month. Explicit Law Bondholders and other creditors claim the state law authorizing bankruptcy is explicit and should be applied to Jefferson County the same way it was applied to Prichard. Bondholders have asked Bennett to dismiss the bankruptcy, which gives the county the right to stop paying some bills temporarily while it reorganizes its finances. Under Chapter 9 of the U.S. Bankruptcy Code, the county may seek court approval for a plan to reduce what it owes creditors. The hearing yesterday focused on whether the county meets legal tests laid out in Chapter 9. Those tests include whether Jefferson County is insolvent, whether it negotiated with creditors before seeking bankruptcy and whether the filing was authorized by state law. Bennett said the county has proven that it meets all the tests except whether state law authorized the filing. The reason he is considering seeking advice from the state Supreme Court is to help him make that final ruling. Agreement Failed Jefferson County filed last month after county, state officials, the receiver and bondholders failed to implement a tentative agreement that would have required the sewer debt to be cut by about $1 billion. Jefferson County was the 13th entity to file a Chapter 9 bankruptcy this year. Three other filings were by municipalities: Boise County, Idaho; Central Falls, Rhode Island; and Harrisburg, Pennsylvania. The rest were special-purpose districts and public-benefit corporations. A bankruptcy judge dismissed Harrisburg’s case, saying it wasn’t properly authorized under state law. Jefferson County’s bankruptcy is opposed by BNY Mellon, the trustee for the sewer debt, and creditors JPMorgan, which owns more than $1 billion of the sewer warrants, Bank of America Corp. and Assured Guaranty Municipal Corp. A group of taxpayers who are suing Jefferson County also seeks to dismiss the bankruptcy. Chapter 9 “In light of the county’s lack of funding or refunding bonds and the resulting failure of specific authorization to file its Chapter 9 petition, the county’s Chapter 9 petition must be dismissed,” BNY Mellon said in a court filing. The county’s sewer system doesn’t collect enough money to pay obligations on more than $3 billion in related debt. Since the Nov. 9 bankruptcy filing, the county has battled bondholders and the sewer system’s receiver for control of the system and its finances. Bennett hasn’t ruled on what limits, if any, the bankruptcy imposes on the receiver, John S. Young Jr. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). --With assistance from Michael Bathon in Wilmington, Delaware. Editors: Stephen Farr, John Pickering To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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Friday, December 16, 2011

Bloomberg: Jefferson County Judge May Seek Bankruptcy Advice From Alabama High Court

The federal judge overseeing Jefferson County’s bankruptcy is considering asking the Alabama Supreme Court for advice on whether to dismiss the biggest U.S. municipal bankruptcy. U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham said he may ask the state’s highest court how to interpret a state law that creditors claim bans Alabama counties from entering bankruptcy unless they have issued “refunding or funding bonds.” The answer he gets is likely to determine whether the county can remain in bankruptcy, lawyers told Bennett yesterday in court. At the end of that hearing, Bennett said he could not immediately rule on whether to dismiss the bankruptcy case as requested by investors who hold more than $3 billion worth of sewer warrants at the heart of the county’s financial troubles. Creditors including Bank of New York Mellon Corp. (BK) and JPMorgan Chase & Co. (JPM) objected to the November filing. They claim Jefferson County doesn’t have any debt that is officially labeled as a bond; its bankruptcy was caused mainly by more than $3 billion in sewer warrants. One Alabama town, Prichard, had its bankruptcy petition thrown out because its debt didn’t include funding bonds, according to court papers. That case is on appeal to the Alabama Supreme Court. Bennett said it was his “inclination” to seek guidance from the Alabama Supreme Court by sending the justices a number of technical questions about state law. He said he would not make a decision before Christmas. Distinction, if Any “If the creditors are right, the outcome will turn on the distinction, if any, between bonds and warrants,” Dale Ginter, a lawyer who represented retired city workers in Vallejo, California’s bankruptcy, said in an e-mail. “Financial instruments are occasionally given different names -- even if the economic impact is the same.” Jefferson County contends that limiting the bankruptcy option in Alabama to municipalities with bonds is “absurd.” “Were the objectors’ argument the law, a county struggling to service $3 billion in bond debt would be authorized to declare bankruptcy, but a county struggling to pay the same $3 billion in warrant obligations would not,” the county argued in court papers filed Dec. 13. Bennett asked both sides to submit proposed questions for the Alabama Supreme Court on whether bond debt is required before a municipality can file for bankruptcy in the state. In Limbo A lawyer for BNY Mellon said that should Bennett send questions to the state court, he should dismiss the bankruptcy petition first. Allowing the case to continue while waiting for an answer from the state high court “leaves the parties in limbo,” David Lemke said in court. The county urged Bennett to allow it to stay under court protection should he send questions to the state justices. Bennett said that if he declines to seek advice and simply rules to allow or reject the bankruptcy, his decision may be appealed, causing more delay than sending so-called certified questions to the state Supreme Court. “At a minimum we’re facing one or two appeals rulings one way or another,” Bennett said in court yesterday. The hearing yesterday opened with county attorney Jeffrey Sewell saying that the county has spent about $10 million on legal related to the sewer debt since 2008. Later, David Carrington, president of the county commission, testified that the bankruptcy filing was necessary because the county was burning through $3 million in cash a month. Explicit Law Bondholders and other creditors claim the state law authorizing bankruptcy is explicit and should be applied to Jefferson County the same way it was applied to Prichard. Bondholders have asked Bennett to dismiss the bankruptcy, which gives the county the right to stop paying some bills temporarily while it reorganizes its finances. Under Chapter 9 of the U.S. Bankruptcy Code, the county may seek court approval for a plan to reduce what it owes creditors. The hearing yesterday focused on whether the county meets legal tests laid out in Chapter 9. Those tests include whether Jefferson County is insolvent, whether it negotiated with creditors before seeking bankruptcy and whether the filing was authorized by state law. Bennett said the county has proven that it meets all the tests except whether state law authorized the filing. The reason he is considering seeking advice from the state Supreme Court is to help him make that final ruling. Agreement Failed Jefferson County filed last month after county, state officials, the receiver and bondholders failed to implement a tentative agreement that would have required the sewer debt to be cut by about $1 billion. Jefferson County was the 13th entity to file a Chapter 9 bankruptcy this year. Three other filings were by municipalities: Boise County, Idaho; Central Falls, Rhode Island; and Harrisburg, Pennsylvania. The rest were special-purpose districts and public-benefit corporations. A bankruptcy judge dismissed Harrisburg’s case, saying it wasn’t properly authorized under state law. Jefferson County’s bankruptcy is opposed by BNY Mellon, the trustee for the sewer debt, and creditors JPMorgan, which owns more than $1 billion of the sewer warrants, Bank of America Corp. and Assured Guaranty Municipal Corp. A group of taxpayers who are suing Jefferson County also seeks to dismiss the bankruptcy. Chapter 9 “In light of the county’s lack of funding or refunding bonds and the resulting failure of specific authorization to file its Chapter 9 petition, the county’s Chapter 9 petition must be dismissed,” BNY Mellon said in a court filing. The county’s sewer system doesn’t collect enough money to pay obligations on more than $3 billion in related debt. Since the Nov. 9 bankruptcy filing, the county has battled bondholders and the sewer system’s receiver for control of the system and its finances. Bennett hasn’t ruled on what limits, if any, the bankruptcy imposes on the receiver, John S. Young Jr. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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Friday, December 16, 2011

Birmingham News: US judge to determine whether Jefferson County bankruptcy should proceed

US judge to determine whether Jefferson County bankruptcy should proceed Published: Friday, December 16, 2011, 6:30 AM By Russell Hubbard -- The Birmingham News John S. Young, Jefferson County sewer receiver.(The Birmingham News/Michelle Campbell) BIRMINGHAM, Alabama -- Jefferson County's bankruptcy court hearing ended Thursday without a final ruling on the legality of the record-setting Chapter 9 filing last month. U.S. Bankruptcy Judge Thomas Bennett said lawyers for the county and its creditors have until Dec. 28 to submit additional information to him. Bennett said all he will accept from the lawyers are suggested questions for him to ask the Alabama Supreme Court, should he chose to do so. The questions would be to determine the state high court's opinion about what kind of debt instruments permit an Alabama municipality to file for Chapter 9 protection. Creditors say the county didn't have the right kind of outstanding debt when it filed, and that the case should be thrown out as legally insufficient on those grounds. That would turn the county's financial clock back to before Nov. 9, when the bankruptcy filing ended more than two years of frustrating and fruitless out-of-court negotiations with creditors to reach a settlement on $3.14 billion of outstanding sewer debt. "We only have two options, bankruptcy or settlement negotiations," Commissioner Jimmie Stephens said in an interview. "So if the bankruptcy went away, we would be back to settlement, but I don't think anyone thinks that is likely to happen." The creditors think it should happen. Alabama law, creditors say, permits only municipalities with outstanding bonds to seek Chapter 9 protection. Jefferson County, the creditors say, had bond-like debt instruments called warrants. Alabama law, creditors say, makes no provision for troubled municipalities burdened by warrants to file for Chapter 9 protection. "The county has not issued bonds for a number of decades," David Lemke, an attorney for court-appointed receiver John S. Young, told Bennett at Thursday's hearing. "To suggest that it happened to at one point in time would trigger the authorization for bankruptcy is a really tortured reading of the statute." County attorneys argued the opposite, saying the county had issued bonds in the past and that in July, contemplated in a commission resolution the need to do so again. Bennett indicated he might send the question to the Alabama Supreme Court for clarification on what sort of debt instruments permit a Chapter 9 filing. He said he would take the matter under consideration, and will take suggested questions for the Alabama high court judges, should it come to that. The Alabama Supreme Court is currently considering a matter that hinges upon the same question, an appeal of the dismissal of the 2009 bankruptcy of the town of Prichard, in southern Alabama. The case was dismissed from U.S. Bankruptcy Court because it was found Prichard lacked bonds, but had warrants. The town then appealed that decision to the Alabama Supreme Court. Bennett did say during the hearing that Jefferson County meets the other requirements of state law regarding Chapter 9 eligibility. Those are that it is a subdivision of a state, is insolvent, negotiated in good faith, and that it wants a debt reorganization. "We proved our eligibility on all other aspects than a technicality," Jefferson County Commission President David Carrington said, referring to the legal distinction between bonds and warrants. Last month, Jefferson County filed the largest municipal bankruptcy in U.S. history, citing $4.23 billion of debts. The sum includes $3.14 billion of outstanding sewer warrants borrowed from lenders to expand and repair the decrepit sanitary system. Debt insurers, sewer warrant holders and banks that lent money for the county to buy back unauctionable bonds are the largest creditors of the county. Join the conversation by clicking to comment or email Hubbard at rhubbard@bhamnews.com. © 2011 al.com. All rights reserved.

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Friday, December 16, 2011

BusinessWeek: Wall St. seeks dismissal of Ala. record bankruptcy

Wall St. seeks dismissal of Ala. record bankruptcy By JAY REEVES BIRMINGHAM, ALA. Wall Street creditors asked a federal judge Thursday to throw out the record bankruptcy filed by Alabama's largest county over more than $4 billion in debt, arguing state law doesn't allow it. Lenders claimed during a hearing and in court documents that Alabama law permits bankruptcy only for bond debt, and Jefferson County has a different type of debt called warrants. The county and creditors could be thrown back into out-of-court settlement talks if the judge agrees. The county contends bankers are cherry-picking state law in hopes of getting the case dismissed, and that any government in the state can go bankrupt whether its debt is for bonds or warrants. The Jefferson County Commission president, David Carrington, testified that municipal bankruptcy was the county's sole option after intense negotiations fell apart. "We ran out of time," said Carrington. U.S. Bankruptcy Judge Thomas B. Bennett ruled that the county met most requirements to file for bankruptcy, but he withheld a decision until after Christmas on whether state law allows it. He said he was inclined to allow the case to go forward to allow a faster route for appeals, which are certain to come no matter which way he decides. It wasn't clear what his eventual ruling might mean to the county's 658,000 residents, but officials have said higher sewer bills are a certainty. Employee layoffs and spending cuts already have resulted in long lines at courthouses, and Carrington said the county lacks the money to respond to a crisis like an ice storm after spending millions to clear roads and debris following the April tornadoes that killed about two dozen in the county. Jefferson County filed the largest municipal bankruptcy in U.S. history last month after three years of negotiations failed to resolve a massive debt linked to borrowing for the county's sewer system. Lenders led by the Bank of New York Mellon argued that state law allows bankruptcy only for bonds -- which the public must approve in a referendum -- and the county has a different type of debt called warrants, which commissioners can issue. Bennett said governments have issued a "proliferation" of warrants in recent years as a way to bypass voters. Trying to bolster his claim that the county isn't eligible to file a municipal bankruptcy, creditor attorney Larry Childs attempted to show that none of Jefferson County's debt was for bonds. "Are you aware of any bonds the county has issued in the last 50 years?" Childs asked county attorney Jeff Sewell, who was testifying about county finances and procedures. "Not that I'm aware of, no," said Sewell. David Lemke, another lawyer representing creditors, cited a court's decision to dismiss a municipal bankruptcy filed by the Mobile County city of Prichard in 2009, and asked Bennett to toss the Jefferson County case. Prichard also lacked bond debt, he said, and the Alabama Supreme Court is currently considering the scope of the state law. The county argued in court documents that the distinction doesn't matter, and that state law expressly gives it the power to file for bankruptcy. David Stern, a lawyer for the county, told the judge commissioners hoped to resolve the dispute quickly so the case can move ahead. "We really want to take care of all the issues today," said Stern. The county cited $4.15 billion in debt when it filed Chapter 9 bankruptcy, far exceeding the previous record set in 1994 by Orange County, Calif., over some $1.7 billion in debt. Jefferson County's financial problems resulted from a mix of outdated sewer pipes, the economy, court rulings and public corruption. The county reached a preliminary deal with Wall Street bankers in September, but that agreement still required legislative approval. Officials never managed to craft a mix of revenue increases, budget amendments and other legislation required for the settlement to move forward, killing any hope that the county would avoid bankruptcy -- a stigma leaders said could tarnish the entire state. The county's problems date back years. A federal judge forced Jefferson County to begin a huge upgrade of its outdated and overwhelmed sewer system to meet federal clean-water standards in the `90s, and officials used bonds to finance the improvements. Outside advisers suggested a series of complex deals with variable-rate interest that were later shown to be laced with bribes and influence-peddling. Loan payments rose quickly because of increasing interest rates as global credit markets struggled, and the county could no longer afford its payments.

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Thursday, December 15, 2011

Bloomberg: U.S. Bankruptcy Judge Bennett ends hearing without ruling on Jefferson County's eligibility

U.S. Bankruptcy Judge Bennett ends hearing without ruling on Jefferson County's eligibility Published: Thursday, December 15, 2011, 2:50 PM Updated: Thursday, December 15, 2011, 3:08 PM By Russell Hubbard -- The Birmingham News BIRMINGHAM, Alabama -- Jefferson County's bankruptcy court hearing has ended without a final ruling on the legality of is record-setting Chapter 9 filing last month. U.S. Bankruptcy Judge Thomas Bennett said lawyers for the county and its creditors have until Dec. 28 to submit additional information to him. Bennett said all he will accept are suggested questions for him to ask the Alabama Supreme Court, should he Jefferson County's eligibility to file a legally sufficient bankruptcy was left undecided today. chose to do so. The questions would be to determine the state high court's opinion about what kind of debt instruments permit a municipality to file for Chapter 9 protection. Creditors say the county didn't have bonds outstanding at the time, only a different bond-like debt instrument called a warrant. Alabama law, creditors say, only permits municipalities with outstanding bonds to seek Chapter 9 protection, and that means Jefferson County's filing should be dismissed. The Alabama Supreme Court is currently considering a matter that hinges upon the same question, an appeal of the dismissal of the 2009 bankruptcy of the town of Prichard, in southern Alabama. © 2011 al.com. All rights reserved.

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Thursday, December 15, 2011

Bham News: Jefferson County Bankruptcy Case May Turn on Meaning of the Word ‘Bond’

The fate of the biggest municipal bankruptcy in the U.S. may depend on how the Alabama Supreme Court defines the word “bond.” U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham said he may ask the state’s highest court for advice on a state law that county creditors claim bans Alabama counties from entering bankruptcy unless they have issued “refunding or funding bonds.” Bennett ended a hearing today without deciding whether Alabama’s Jefferson County can stay in bankruptcy. Creditors including Bank of New York Mellon Corp. (BK) and JPMorgan Chase & Co. (JPM) objected to the November filing and want Bennett to dismiss the Chapter 9 petition because Jefferson County doesn’t have any debt that is officially labeled as a bond; its bankruptcy was caused mainly by more than $3 billion in sewer warrants. One Alabama town, Prichard, had its bankruptcy petition thrown out because its debt didn’t include funding bonds, according to court papers. That case is on appeal to the Alabama Supreme Court. Bennett said it was his “inclination” to seek guidance from the Alabama Supreme Court under a process. He said he would not make a decision before Christmas. Distinction, if Any “If the creditors are right, the outcome will turn on the distinction, if any, between bonds and warrants,” Dale Ginter, a lawyer who represented retired city workers in Vallejo, California’s bankruptcy, said in an e-mail. “Financial instruments are occasionally given different names -- even if the economic impact is the same.” Jefferson County contends that limiting the bankruptcy option in Alabama to municipalities with bonds is “absurd.” “Were the objectors’ argument the law, a county struggling to service $3 billion in bond debt would be authorized to declare bankruptcy, but a county struggling to pay the same $3 billion in warrant obligations would not,” the county argued in court papers filed Dec. 13. Bennett asked both sides to submit proposed questions for the Alabama Supreme Court on the question about whether bond debt is required before a municipality can file for bankruptcy in the state. The hearing opened this morning with county attorney Jeffrey Sewell saying that the county has spent about $10 million on legal related to the sewer debt since 2008. Explicit Law Bondholders and other creditors claim the state law authorizing bankruptcy is explicit and should be applied to Jefferson County the same way it was applied to Prichard. Bondholders have asked Bennett to dismiss the bankruptcy, which gives the county the right to stop paying some bills temporarily while it reorganizes its finances. Under Chapter 9 of the U.S. Bankruptcy Code, the county may seek court approval for a plan to reduce what it owes creditors. Bennett scheduled a two-day hearing starting today to decide whether the county meets legal tests laid out in Chapter 9. Those tests include whether Jefferson County is insolvent, whether it negotiated with creditors before seeking bankruptcy and whether the filing was authorized by state law. The dispute over the definition of the word ‘bond’ is part of the state law test and was the focus of court filings leading up to today’s hearing. Both sides agree that the Alabama Supreme Court may need to answer the question of whether a public debt must be labeled as a bond before a municipality qualifies for bankruptcy. Agreement Failed Jefferson County filed last month after county, state officials, the receiver and bondholders failed to implement a tentative agreement that would have required the sewer debt to be cut by about $1 billion. Jefferson County was the 13th entity to file a Chapter 9 bankruptcy this year. Three other filings were by municipalities: Boise County, Idaho; Central Falls, Rhode Island; and Harrisburg, Pennsylvania. The rest were special-purpose districts and public-benefit corporations. A bankruptcy judge dismissed Harrisburg’s case, saying it wasn’t properly authorized under state law. Jefferson County’s bankruptcy is opposed by BNY Mellon, the trustee for the sewer debt, and creditors JPMorgan, which owns more than $1 billion of the sewer warrants, Bank of America Corp. and Assured Guaranty Municipal Corp. A group of taxpayers who are suing Jefferson County also seeks to dismiss the bankruptcy. Chapter 9 “In light of the county’s lack of funding or refunding bonds and the resulting failure of specific authorization to file its Chapter 9 petition, the county’s Chapter 9 petition must be dismissed,” BNY Mellon said in a court filing. The county’s sewer system doesn’t collect enough money pay obligations on more than $3 billion in related debt. Since the Nov. 9 bankruptcy filing, the county has battled bondholders and the sewer system’s receiver for control of the system and its finances. Bennett hasn’t ruled on what limits, if any, the bankruptcy imposes on the receiver, John S. Young Jr. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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Thursday, December 15, 2011

The Wall Street Journal: Jefferson County Can’t Afford Another Natural Disaster

DECEMBER 15, 2011, 2:43 PM ET Jefferson County Can’t Afford Another Natural Disaster Associated Press The Army Corps of Engineers gets rid of debris in the tornado affected area of Walker, Ala., on May 31. Fearful of a future financial punch, Jefferson County is praying for rain these next few months. The onset of winter has raised the possibility ice storms—the Southern cousin to the blizzard that slicks Alabama streets with a dangerous sheen. Southern weather doesn’t send down solid flakes of manageable snow. Instead, an ice storm’s frigid rain creates a glassy coat that can pull down mature trees onto power lines and cause startled drivers to collide helplessly—creating a Weather Channel spectacle that leaves viewers in colder climates questioning the hysterics. But Jefferson County can’t afford another natural disaster, said county commissioner David Carrington from the witness stand in U.S. Bankruptcy Court in Birmingham, Ala., Thursday as he gave a narrative of the municipality’s desperate financial condition. The county nearly emptied its $25 million pot of remaining operating reserves to clean up damage from the F-4 category tornado that tore through the heart of county in late April, killing at least 21 residents and leveling several neighborhoods, county attorneys said in court documents. Amid the disaster, county commissioners agreed to spend that money on a contractor that was able to put “boots on the ground” within 72 hours of the storm, Carrington said. But of the $17 million the county spent on cleanup, it’s only received about $8 million back from federal and state sources in reimbursements, he said. Worse, the county has cut the number of staffers within its road department in half since the storms. When April’s storms hit, the department was able to dispatch 400 folks to dissect tree trunks that came to rest on major roadways. “They’re the true first responders,” Carrington said on the stand. “They have to clear the roads for police and emergency and medical [personnel].” Jefferson County attorneys are defending the county’s request for Chapter 9 bankruptcy protection, which it filed in November under the weight of more than $3.2 billion in debt. It borrowed that money to pay for a sewer-system upgrade that would keep raw sewage out of local rivers and streams, but the deals were steeped in a corruption scandal that sent some former county officials to prison. Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com

Thursday, December 15, 2011

Bloomberg: Jefferson County Bankruptcy Case May Turn on Meaning of the Word ‘Bond’

Jefferson County Bankruptcy Case May Turn on Meaning of the Word ‘Bond’ By Steven Church - Dec 15, 2011 The fate of the biggest municipal bankruptcy in the U.S. may depend on how the Alabama Supreme Court defines the word “bond.” U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham said he may ask the state’s highest court for advice on a state law that county creditors claim bans Alabama counties from entering bankruptcy unless they have issued “refunding or funding bonds.” Bennett ended a hearing today without deciding whether Alabama’s Jefferson County can stay in bankruptcy. Creditors including Bank of New York Mellon Corp. (BK) and JPMorgan Chase & Co. (JPM) objected to the November filing and want Bennett to dismiss the Chapter 9 petition because Jefferson County doesn’t have any debt that is officially labeled as a bond; its bankruptcy was caused mainly by more than $3 billion in sewer warrants. One Alabama town, Prichard, had its bankruptcy petition thrown out because its debt didn’t include funding bonds, according to court papers. That case is on appeal to the Alabama Supreme Court. Bennett said it was his “inclination” to seek guidance from the Alabama Supreme Court under a process. He said he would not make a decision before Christmas. Distinction, if Any “If the creditors are right, the outcome will turn on the distinction, if any, between bonds and warrants,” Dale Ginter, a lawyer who represented retired city workers in Vallejo, California’s bankruptcy, said in an e-mail. “Financial instruments are occasionally given different names -- even if the economic impact is the same.” Jefferson County contends that limiting the bankruptcy option in Alabama to municipalities with bonds is “absurd.” “Were the objectors’ argument the law, a county struggling to service $3 billion in bond debt would be authorized to declare bankruptcy, but a county struggling to pay the same $3 billion in warrant obligations would not,” the county argued in court papers filed Dec. 13. Bennett asked both sides to submit proposed questions for the Alabama Supreme Court on the question about whether bond debt is required before a municipality can file for bankruptcy in the state. The hearing opened this morning with county attorney Jeffrey Sewell saying that the county has spent about $10 million on legal related to the sewer debt since 2008. Explicit Law Bondholders and other creditors claim the state law authorizing bankruptcy is explicit and should be applied to Jefferson County the same way it was applied to Prichard. Bondholders have asked Bennett to dismiss the bankruptcy, which gives the county the right to stop paying some bills temporarily while it reorganizes its finances. Under Chapter 9 of the U.S. Bankruptcy Code, the county may seek court approval for a plan to reduce what it owes creditors. Bennett scheduled a two-day hearing starting today to decide whether the county meets legal tests laid out in Chapter 9. Those tests include whether Jefferson County is insolvent, whether it negotiated with creditors before seeking bankruptcy and whether the filing was authorized by state law. The dispute over the definition of the word ‘bond’ is part of the state law test and was the focus of court filings leading up to today’s hearing. Both sides agree that the Alabama Supreme Court may need to answer the question of whether a public debt must be labeled as a bond before a municipality qualifies for bankruptcy. Agreement Failed Jefferson County filed last month after county, state officials, the receiver and bondholders failed to implement a tentative agreement that would have required the sewer debt to be cut by about $1 billion. Jefferson County was the 13th entity to file a Chapter 9 bankruptcy this year. Three other filings were by municipalities: Boise County, Idaho; Central Falls, Rhode Island; and Harrisburg, Pennsylvania. The rest were special-purpose districts and public-benefit corporations. A bankruptcy judge dismissed Harrisburg’s case, saying it wasn’t properly authorized under state law. Jefferson County’s bankruptcy is opposed by BNY Mellon, the trustee for the sewer debt, and creditors JPMorgan, which owns more than $1 billion of the sewer warrants, Bank of America Corp. and Assured Guaranty Municipal Corp. A group of taxpayers who are suing Jefferson County also seeks to dismiss the bankruptcy. Chapter 9 “In light of the county’s lack of funding or refunding bonds and the resulting failure of specific authorization to file its Chapter 9 petition, the county’s Chapter 9 petition must be dismissed,” BNY Mellon said in a court filing. The county’s sewer system doesn’t collect enough money pay obligations on more than $3 billion in related debt. Since the Nov. 9 bankruptcy filing, the county has battled bondholders and the sewer system’s receiver for control of the system and its finances. Bennett hasn’t ruled on what limits, if any, the bankruptcy imposes on the receiver, John S. Young Jr. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net ®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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Monday, November 28, 2011

Wall Street Journal: Will the Muni-Bond Rally Survive 2012?

After a dismal start to the year, few asset classes have rallied as much as municipal bonds. The iShares S&P National AMT-Free Municipal Bond fund has gained 10.6% this year, while the average intermediate municipal-bond fund gained about 7%, more than the average intermediate government bond fund, which gained 6.1%, according to Morningstar. A number of factors are behind the strong numbers. The wave of defaults that had been predicted at the beginning of the year have yet to emerge; municipalities issued far fewer bonds than they had in previous years, placing a premium on those that did come to market; and Treasury yields plummeted, pulling the yields of all safe-seeming bonds lower with them. And even a pair of potentially devastating events—the bankruptcy filing of Jefferson County, Ala. and the spike in European government bond yields—haven’t caused investors to start selling. So what could derail this feel-good story in 2012? Here are a few thoughts: The Mainstreaming of Chapter 9 Bankruptcy: Most observers have always thought of Chapter 9 bankruptcy as something to be avoided. The process is interminable—Vallejo, Calif., only emerged from bankruptcy this year after filing in 2008—and it usually doesn’t solve the financial problems that got it there in the first place. But when Jefferson County, Ala., filed for Chapter 9, it “headed in a more interesting direction than the market would like,” wrote Municipal Market Advisors’ Matt Fabian and Lisa Washburn in a Nov. 21 note. The insolvent county has filed “petitions to wrest control of its asset s from the receiver and the trustee,” they wrote, that “if approved by the court, would only encourage other issuers to seek protection under Chapter 9.” The end result, they say, could end up hitting revenue bonds particularly hard if investors and portfolio managers decide they should be discounted for the risk of more Chapter 9s. Issuance: Municipal issuance plummeted this year. RBC Capital Markets predicts that new volume will come in between $275 million and $285 million in 2010, 35% lower than in 2010. But don’t look now: RBC expects issuance to jump back to more normal levels in 2012, about $340 million. The impact of the new issuance is unclear. If rates stay low and investors go hunting for yields, municipal bonds could benefit. But watch out if financial-market chaos keeps buyers on the sidelines. The Volcker Rule: In a report issued on Nov. 20, Citigroup argued that the Volcker Rule could have some negative implications for municipal bonds. Market participants assumed that the rule—which would limit the bets banks can make on financial markets with their own money—would have limited impact on the muni market. They were wrong. The proposal appears to impose trading regulations on more than half of the municipal-bond market—including many revenue bonds, Citi’s analysts wrote. They make the case that without banks’ participation as propietary traders, bid-ask spreads would widen and yields on new issues would have to be sold with higher yields, as the market would be far less liquid. Unclear from the report is just how big a role prop traders play in the muni market—and whether this is just fear-mongering by a U.S. investment bank or whether investors should worry about their revenue bonds. What’s your forecast for muni bonds in 2012?

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Monday, November 28, 2011

Bham News: JOEY KENNEDY: Sewer receiver John S. Young's fate rests with the court. What should be the outcome?

Everybody knows John S. Young, the state court-appointed receiver of Jefferson County's bankrupt sewer system, gets $500 an hour. It's a pretty good job if you can get it. But it's also important to know that Young knows what he's doing. He knows his business. Whether that's worth $500 an hour -- well, if he is, so am I, and I get just a fraction (a tiny fraction) of that amount. But what Young is paid shouldn't really be the issue. The issue, at least before the federal bankruptcy court last week, was whether Young should keep his job. Jefferson County Commission members want Young gone. Sewer creditors argued strongly for Young to stay. That says something about who Young really works for, and it's not the sewer ratepayers. The friction increases because Young was appointed by a state judge, but now the case, after Jefferson County's massive bankruptcy, is in federal court. The state court gave Young the authority to raise sewer rates; but should he maintain that authority, or even stay on the job? We know that county commissioners, at least in the past, were incapable of competently running the sewer system. Their oversight led to corruption, bribery and convictions for at least four former commissioners, and prison for a whole bunch of people. And none of the current commissioners or the county manager have experience running a sewer system. So, does Jefferson County need Young's expertise? That's what this week's Views poll wants to know. Vote below, and tell us what you think. The results and a selection of comments will be published in Sunday's Viewpoints section. We can talk about this during our weekly live chat on Tuesday at 1 p.m. as well. Follow Joey Kennedy on Twitter: @joeykennedy

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Monday, November 28, 2011

Birmingham News: OUR VIEW: Special election Tuesday to fill Alabama House seat of the late Owen Drake could be critically important to Jefferson County

Tuesday is Election Day in eastern Jefferson County and western St. Clair County. And it's an important election. Voters there will choose the House 45 representative to the Alabama Legislature. The special election is being held to fill the vacancy left by the death of state Rep. Owen Drake, R-Leeds, who died in July following a bout with cancer. This election is important because the Jefferson County Legislative Delegation must deal with the financial crisis rocking Jefferson County, which recently filed the largest government bankruptcy in U.S. history. County officials want the Legislature to help resolve its general fund problem by replacing tax dollars lost when courts earlier this year struck down the county's occupational tax. Lawmakers also could be asked to enact measures dealing with the county's sewer debt whenever the county comes up with a repayment plan to get it out of bankruptcy. Running in Tuesday's election are Democrat Paige Parnell, a former Miss Alabama and Leeds businesswoman, and Republican Dickie Drake, a Leeds businessman and brother of Owen Drake. Dickie Drake won an October runoff against Irondale Mayor Tommy Joe Alexander to earn the Republican nomination; Parnell was unopposed. Our choice is Parnell, whose campaign theme has been "Putting People Above Parties." She says the interests of constituents should come before the interests of political parties, and she promises to never sign a pledge to vote the way the party tells her. She has also been critical of the state's tough new immigration law, noting that it hurts state businesses. Frankly, we're bothered by Drake's states' rights rhetoric, his pledge to never support new taxes, and his plan to reintroduce a bill which his brother had sponsored that would outlaw nonuser sewer fees. The latter could be detrimental by removing one option for the county as it works toward a debt-repayment plan in bankruptcy. Paige Parnell is the better choice, especially for Jefferson County. But that's just our view. What's more important for voters in District 45 is to exercise their right and civic responsibility Tuesday by voting for the candidate of their choice.

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Sunday, November 27, 2011

Bham News: Two Alabama counties are among the four that have ever filed for bankruptcy

BIRMINGHAM, Alabama -- More than 600 government entities have filed for Chapter 9 bankruptcy since it was created in 1937, but only four counties have done so, including two in Alabama, according to a professor at Auburn University-Montgomery who has researched the history of municipal bankruptcy. Keren Deal, a professor of accounting and finance at AUM, said Jefferson County's record $4.23 billion filing this month and Greene County's filing in 1996 are two of the four county Chapter 9 filings in U.S. history. The others are Orange County, Calif., which filed a $1.7 billion bankruptcy in 1994, and Boise County, Idaho, which filed earlier this year. Overall, Alabama is among the states with the most Chapter 9 bankruptcy filings. The state has fewer restrictions on municipal bankruptcy than most states do, Deal said. "I was not surprised by the Jefferson County filing. However, I had hoped that the county could have avoided the step of filing Chapter 9 mainly due to the negative publicity of any municipal bankruptcy filing," she said. Now that the county has filed bankruptcy, Deal said openness should be part of any plan going forward. "Transparency should be the key initiative for the commission, especially in keeping the citizenry as well as state government officials informed of the decisions -- especially in how officials plan to address the plan of adjustment for the debts that will be filed with the federal court," she said. Deal said bankruptcy is not just a county issue, because of the "contagion" factor -- the possible spread of Jefferson County's financial woes to other areas of the state. Bankruptcy, she said, "signals to the credit market that there are underlying fiscal issues for the surrounding municipalities as a whole. My colleague, Dr. Cynthia Bowling, and I have conducted research that indicates the presence of municipal bankruptcies within a state signal to the credit rating agencies and result in lower credit ratings, thus creating the added burden of interest costs on the taxpayers and cuts to services." Deal, who has a doctorate in public administration with emphasis on public finance and accounting and also conducted academic research on the bankruptcy of the town of Prichard, said her study has shown that through September, 615 municipalities had filed for Chapter 9 municipal bankruptcy protection since Congress passed the municipal bankruptcy legislation in 1937. "The occurrence of bankruptcy cases has been increasing since 1980, with 259 cases filed by a mix of political structures -- mostly city, town, village and special authority districts -- through 2011," she said. "This may seem like a small number compared to personal or corporate bankruptcies; however, municipal bankruptcy is unique because it affects a broad range of stakeholders, from the citizenry that receive services to the investors who bought the municipal bonds." The city of Harrisburg, Pa., filed for bankruptcy last month, and on Aug. 1 a state-appointed receiver overseeing Rhode Island's cash-strapped Central Falls filed for Chapter 9. Vallejo, Calif., emerged from three years of Chapter 9 bankruptcy on Nov. 1. Vallejo had filed for bankruptcy in May 2008, one of the largest and most significant Chapter 9 filings since Orange County filed in 1994. Alabama is ranked fifth among states in local government bankruptcy filings between 1994 and 2008, Deal said. "Alabama is one of 15 states in the U.S. that specifically authorizes municipal bankruptcy without further notification at the state level, which the municipal finance field labels as 'hands off' authorization," Deal said. She said 21 states do not have specific authorization, meaning that municipal governments in those states can't file in federal court for bankruptcy protection; two states, Iowa and Georgia, specifically prohibit filing; and three states have in their laws limited authorization to file if the municipality is granted authorization by the legislature. History In 1934, the U.S. Congress enacted municipal bankruptcy legislation in response to the high municipal bond defaults caused by the economic depression of the 1930s. During that period, municipal bond defaults went from 678 in 1932 to approximately 4,770 a year by the end of the 1930s. The Act was amended in 1937 to include voluntary filings by local governments subject to state authoritative approval. In 1940 Congress amended the act again to include protection for county governments, which had been excluded from the previous bankruptcy legislation. The act was made a permanent part of the U.S. Bankruptcy Law in 1946. In 1994 Congress amended the legislation, allowing states to "specifically authorize" local governments' bankruptcy claims. So far, only 25 states allow for a bankruptcy filing, and many have enacted additional steps or requirements prior to the filing, Deal said. "Alabama does not have an 'early warning' system for fiscal stress in municipals other than the model currently in place by the state Department of Education for the local education agencies across the state," Deal said. "Alabama did pass legislation in 1994 to specifically authorize cities, towns and counties, and had to amend this legislation in 2001 during the Don Siegelman administration to allow the filing of the West Jefferson Amusement and Public Park Authority," the entity behind Visionland, she said. Deal said her research turned up an interesting side note. "In 1839, Mobile, Alabama became the first recorded municipality to default on a municipal bond issue after its tax revenues dropped precipitously due to the Panic of 1837. The principal amount of the bond default by Mobile was $513,000." Adjusted for inflation, the amount would be $10.4 million in today's dollars. Join the conversation by clicking to comment or email Wright at bwright@bhamnews.com. © 2011 al.com. All rights reserved.

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Sunday, November 27, 2011

InvestmentNews: Surge in muni defaults seen unlikely

State and local governments are unlikely to experience a “material increase” in municipal defaults over the next three to five years, according to a study by Kroll Bond Rating Agency Inc. Related to this story The study, released the week after Alabama's Jefferson County filed the biggest muni bankruptcy in U.S. history, draws on data from more than 8,500 defaults from 1920 to 2010. The ratings company determined that the economic strains facing local governments in the wake of the 18-month recession that ended in 2009 made the wave of defaults in the Great Depression a useful comparison. About 4,800 issuers defaulted on obligations between 1929 and 1939, the report said. “Our study finds that widespread municipal bond defaults have not been a feature of the most recent downturn, and we do not expect a sharp increase in defaults over the foreseeable future,” KBRA president Jim Nadler wrote in an e-mail. The $2.9 trillion muni market faces risks, including services mandated by the federal government at a time of declining federal transfers, unfunded pension liabilities, needed infrastructure upgrades and weak economic growth, the report said. “We do not foresee a material increase in municipal defaults over the medium term,” the study said. “Moreover, our findings support the view that any resulting investor losses are likely to be small.” The Chapter 9 filing by Jefferson County, which has more than $3 billion of sewer debt, followed bankruptcy filings involving Central Falls, R.I., in August and Harrisburg, Pa., last month. It came as the county, the receiver, bondholders and Alabama state lawmakers failed to implement a tentative deal struck in September that would have cut the amount owed on the sewer bonds and increased rates.

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Sunday, November 27, 2011

Bham News: OUR VIEW: Long, costly fight over court-appointed receiver's power to raise Jefferson County sewer rates can be avoided through compromise

Lawyers for Jefferson County and for the state court-appointed receiver over the county's sewer system argued in federal bankruptcy court last week over whether the receiver should stay in control. A decision by the bankruptcy judge is weeks, possibly longer, away. The key issue, though, isn't whether John S. Young gets to continue to manage the sewer system's finances and operations. It's whether Young, or anyone else for that matter, should be able to raise sewer rates while the county and its sewer system are in bankruptcy. Frankly, it matters little to sewer customers who's at the helm. What matters is the sewer rates they will be asked to pay now, and later, under whatever final repayment plan is worked out in bankruptcy court on the sewer system's $3.14 billion debt, which fueled the bankruptcy. At a court hearing last week, much of the discussion was about whether the sewer system, plagued in the past by mismanagement and corruption, needs Young's guiding hand. Young was appointed receiver over the sewer system a year ago by Russell County Circuit Judge Albert Johnson at the request of sewer creditors who said the county wasn't doing enough to raise sewer revenue and repay the debt on which it was in default. Young's side argued that before his arrival, the sewer system did a poor job collecting what sewer customers should have paid. Hundreds of sewer customers hadn't even been billed, accounting for millions of dollars a year, testimony before bankruptcy Judge Thomas Bennett revealed. Plus, the sewer system still needs much work, as evidenced by the fact 60 percent of the water in the system leaked in through faulty sewer lines and manhole covers, Young's team maintained. The county wants Young gone. Its lawyers argue county officials can run the system just fine without Young. The county's Chapter 9 bankruptcy filing should return control of the system back to the County Commission, the county's lawyers say. What irks county officials most, besides Young's $500-an-hour salary, are his claim on $75 million from the U.S. Securities and Exchange Commission's settlement from bond financier JPMorgan Chase and his plans to raise sewer rates. Young essentially represents sewer creditors, not the county or sewer customers, the lawyers say, and his threats hang over the county like the sword of Damocles. Bennett said last week he wasn't ready to make a decision. He gave lawyers until Dec. 2 to file additional written arguments. All of this makes for great drama. And anxiety. Bennett can ease some of that anxiety by freezing Young's ability to raise rates even if he agrees the receiver should remain in charge of the sewer system. Or he can ask the two sides to try to agree on a modest rate increase while the county pieces together a final bankruptcy plan. Both sides have incentives to reach such a deal. The county and ratepayers lose if the judge keeps Young on and says he can raise rates. Creditors lose if Young is removed and rates that are inadequate to repay the sewer debt stay the same. Sewer rates have gone up 329 percent since 1996 to help pay for the massive, countywide overhaul of polluting sewer lines and treatment plants. But rates have not gone up the past three years as the county struggled with its sewer debt crisis. Frankly, this is uncharted territory, even for the bankruptcy court. Municipal bankruptcies, especially at the county level, are rare, and each is different. Plus, the scope of the county's bankruptcy, $4.23 billion, easily dwarfs any other government bankruptcy. The issue over the receiver complicates matters more. Who can confidently predict how this will turn out for either side? Before the county's bankruptcy filing, both sides said sewer rates would have to go up -- through bankruptcy or a negotiated settlement. A drawn-out fight over the receiver and his power -- one that could reach the U.S. Supreme Court -- won't change the likelihood of future rate increases. Here's yet another chance for the county and creditors to work out an arrangement that benefits each. They shouldn't waste it.

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Sunday, November 27, 2011

Bham News: OUR VIEW: The $10.5 million from the sewer system can be Jefferson County's bridge over troubling budget cuts

There's one critically important bill the bankrupt Jefferson County sewer system should pay as soon as possible: to Jefferson County itself. Last week, officials for the financially distressed county government said they would delay for a month further deep cuts in county services and personnel as they try to recover $10.5 million they say the county is owed by its sewer system. The County Commission had been expected to move ahead on Dec. 1 with another round of budget cuts as it tries to close a $40 million deficit. It might seem strange for the county to turn to the sewer system for help. Just weeks ago, the county filed the largest government bankruptcy in U.S. history, with the $3.14 billion in debt owed by the sewer system being the main driver. But county officials say the money is owed for services provided by the county, and the court-appointed receiver now running the sewer system agrees it owes the county money and should pay. The holdup, for now at least, seems to be over how much is owed. "I do owe them a substantial amount of money once we decide what the number is," sewer receiver John S. Young said last week. "What I want to do is agree on a number quickly and write them a check for that number." Obviously, the quicker the better. Already, the county government is operating at below bare-bones level. About $92 million has been cut from the budget since courts earlier this year struck down the county's occupational tax, which accounted for one-quarter of the county's general fund. More than 500 county workers have been laid off and satellite courthouses have been closed, resulting in three- to four-hour waits in long lines just to get car tags. In addition, the county's Birmingham jail is overcrowded because the sheriff doesn't have the money to reopen an expanded Bessemer jail. He also faces having to lay off more than 100 deputies. And that's all before the new round of budget cuts. To get to $40 million, the county will have to look at further layoffs and salary cuts. The hope is the $10.5 million can keep the county going short term without decimating county services. "But realize that only solves a quarter of the problem," County Commission President David Carrington said. "We still have to have a general fund fix." Actually, it doesn't even solve a quarter of the county's general fund problem. The $40 million will only maintain current, inadequate services. The satellite courthouses and the Bessemer jail would remain closed, the long lines would continue, and Sheriff Mike Hale would still have to lay off deputies. A real general fund fix would restore the $66 million lost as a result of the occupational tax being struck down. Unfortunately, only the Alabama Legislature can restore the lost money by reinstituting a new occupational tax or other replacement taxes. Even more unfortunately, lawmakers have been unresponsive to the county's needs, even though the Legislature is directly responsible for the occupational tax being contested and thrown out in court. Ideally, the $10.5 million from the sewer system should be a bridge giving the Legislature time to finally fix the problem it created. Lawmakers must agree on a tax plan for the county. Otherwise, the $10.5 million would amount to a bridge to nowhere.

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Saturday, November 26, 2011

Bham News: Bankruptcy judge approves county request to hire legal services firm

BIRMINGHAM, Alabama -- U.S. Bankruptcy Judge Thomas Bennett has approved Jefferson County's request to hire an outside company to furnish legal support services. Kurtzman Carson Consultants, a legal services firm with offices in New York and Los Angeles is the firm. The county said in legal filings that it makes more sense to hire a professional firm to handle the volumes of correspondence and legal notices its bankruptcy will require than to attempt to handle it all internally. Because the county is operating under bankruptcy protection, using money for extraordinary expenses required the judge's approval.

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Saturday, November 26, 2011

Bham News: Jefferson County sewer debt for fiscal 2011 was $84,525 an hour

BIRMINGHAM, Alabama -- Just for fiscal 2011, which ended in September, the county was supposed to have paid bond holders $737 million. That works out to $61 million a month, $14.2 million a week, $2 million a day and $84,525 an hour, 24 hours a day, for every day of that year. It isn't quite as bad for the current fiscal year of 2012, according to recently released audited financial statements posted on Jefferson County's investor relations website. Only $116 million is scheduled to come due, all of it, of course, suspended pending the county's bankruptcy case. Still, it amounts to $9.6 million a month. All told, the bankruptcy notwithstanding, $3.14 billion is owed between now and 2042, with annual amounts varying between the high of $737 million and a low of $31 million in 2013. To put all that in perspective, look at the county's entire projected annual budget for fiscal 2012, including the sewer and all other revenue sources. The total is projected to be at about $640 million, or about $100 million less than was owed last year by the sewer system for its bond borrowing. Presiding U.S. Bankruptcy Judge Thomas Bennett sees the problem for what it is, telling lawyers at a hearing on Tuesday he doubts the "system will ever financially function" under the current debt load. "It is just a terrible problem," Bennett said. Bennett deferred on making any rulings Monday and Tuesday. Receiver Young had applied for an exemption to normal bankruptcy procedure, asking the judge to waive the "automatic stay" that prohibits outside interference in a debtor's affairs. Bennett called the issues too complex for immediate judgment, and set a Dec. 2 deadline for the submission of fresh written arguments from Young and the creditors, who want him to be exempt from the stay, and the county, which wants him subjected to it. Young was appointed last year by a judge in Russell County Circuit Court to run the sewer and control its revenues. A veteran of the water utility industry, Young took office after bondholders grew weary of payment defaults, criminal convictions and poor maintenance of the sewer system built with money they lent. It was decreed that independent oversight was required by Young, whose career has mostly been with American Water, the New Jersey-based largest investor-owned water utility. The compensation paid to Young of $500 per working hour has topped $1 million in the past 14 months, a figure which has generated public outrage. Good of a payday as it is, $1 million still works out to only .03 percent of the $3.14 billion sewer debt. That in turn works out to 31 cents in pay for Young for each $1,000 of debt agreed to by the previous county commissions that authorized the sewer borrowings and refinancings. The current commission isn't at fault -- the borrowing all happened before this group took office last year. Cigar-box Regardless of who has been in charge, Jefferson County hasn't been paying anywhere near what has been owed on the sewer debt. It is only paying between $4 million and $5 million a month, according to Young's testimony this week. That is all that is left out of the $13.4 million Young testified the system takes in each month from its 150,000 ratepayers. The testimony in U.S. Bankruptcy Court in Birmingham also indicated a cigar-box cash management, general-store type of operation. After Young pays the sewer system's wages, salaries and operating expenses for the month, any remainder is sent to The Bank of New York Mellon, which distributes the money to the bondholders, mostly large Wall Street institutions. Luckily for the county, more penalties aren't accruing for making the paltry payments. The county struck a forbearance agreement with bondholders such as New York-based JPMorgan Chase & Co. this year. The bankruptcy filing this month that cited $4.23 billion liabilities would have stopped penalties had the forbearance not. "The sewer debt is much larger than can ever be serviced," county lawyer David Stern told Bennett during Tuesday's hearing. Coverage area The prospect of pursuing civil claims of wrongdoing also emerged at the two days of hearings this week. The claims would stem from the sewer project's financing and construction that began in 1996. In subsequent years, there were 21 criminal convictions of elected officials, contractors and others for bribery and fraud. Some bondholders have been sued and been involved in potentially illegal activities, Stern told Bennett, in pleading for the automatic stay to apply to Young, which would bar him from controlling sewer revenues. He was talking about JPMorgan, which organized Jefferson County's bond sales and received a fee for doing so. It agreed in 2009 to forfeit its claim to an additional $647 million owed by Jefferson County. That agreement was to settle a Securities and Exchange Commission lawsuit that alleged the investment bank bribed county commissioners and their cronies with $8 million to win the bond business. The investment bank didn't admit wrongdoing. A managing director of JPMorgan who worked on the Jefferson County account, Charles LeCroy, later went to jail for bribing officials in Philadelphia. Jefferson County sued JPMorgan for fraud in Jefferson County Circuit Court in 2009. The case is pending, with a trial date set for October 2013. The county alleges in the civil lawsuit the structure of the bonds and interest-rate swaps devised by JPMorgan were inappropriate and risky. Jefferson County's bankruptcy eclipsed that of Orange County's 1994 filing as the largest municipal one in U.S. history. The routes to bankruptcy were quite different. Still, Orange County's subsequent legal actions against its financial advisers eventually recovered about $600 million, a little less than half of the liabilities cited in the bankruptcy. Presiding Judge Bennett, a veteran of both the bench and private practice as a bankruptcy attorney, is considered by lawyers on both sides to be an expert at figuring what things are worth, one of the key aspects of any bankruptcy proceeding. His previous cases have included complex business bankruptcies such as those of Pelham hardware distributor Moore-Handley Inc. and Birmingham insurer Vesta Insurance Group. Bennett indicated during the Tuesday hearing the best solution might be for the system to expand its coverage area, bringing in new paying customers. That would be a reversal of the early trends that built the Jefferson County system starting in 1901, with dozens of municipalities ceding their systems to the county, many of them broke and broken themselves. "Municipalities unloading their problems on the county is really what is going on here," Bennett said at the Tuesday hearing. Join the conversation by clicking to comment or email Hubbard at rhubbard@bhamnews.com.

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Friday, November 25, 2011

Bham Business Journal: JeffCo bankruptcy may boost local law firms

Birmingham’s legal industry could see a spike in business as parties involved in Jefferson County’s bankruptcy proceedings seek local counsel to advise and represent their companies. Bankruptcy attorneys at Birmingham-based law firms and firms with a major area presence are being called upon for their familiarity with the local legal culture and rules. “Given that Jefferson County’s bankruptcy is the largest municipal filing in U.S. history, my guess is that it will generate a significant amount of legal work for the Birmingham legal community,” said Bo Landrum, executive director of the Birmingham Bar Association . “Smart creditors will take advantage of ...

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Friday, November 25, 2011

Montgomery Advertiser: Jefferson County using capital funds to pay daily expenses

BIRMINGHAM -- The manager for bankrupt Jefferson County said the county is spending money meant for building repairs and maintenance on daily operations, a move he called "a recipe for disaster" that will lead to long-term consequences. Tony Petelos told the Birmingham News that the county is trying to stave off closing county departments by using money set aside for capital expenses instead. The county is in the red $40 million because of a defunct occupational tax, which was struck down in 2009. Petelos said the county needs a fix from Alabama lawmakers. The county filed for Chapter 9 bankruptcy earlier this month -- the biggest civic bankruptcy in U.S. history -- though the full impact on the county's 658,000 residents is not yet clear. "We're taking the capital money for daily operations," Petelos told the newspaper. "That's a recipe for disaster two, three, four years down the road when we are not replacing sheriff's cars, when we are not replacing roofs and air conditioners and making major improvements on our capital projects." He said the county should be investing $20 million a year in capital improvements, but that's not happening to help keep the county afloat. A judge has scheduled a hearing next month to rule on whether the bankruptcy can move forward. Petelos pointed to four elevators in a 17-story tower that houses the Jefferson County Personnel Board and other offices that are on their "last legs." He said the county may have to shut down two of the elevators to use those parts to keep the other two cars working. Sheriff's office Deputy Chief Randy Christian said the department is living on a refurbished fleet of cars and a few used vehicles for now, but eventually new cars must be bought. He said the sheriff's office roof leaks during heavy rains and there is no money to repair the heating and air-conditioning system, which breaks frequently. Experts said the county's bankruptcy could lead to significantly higher sewer rates, higher taxes, pension reductions for public workers and cuts to schools, roads and other infrastructure. Because of the past layoffs and office closings, residents already face hours-long lines for services such as renewing their car tags. The county has cut 500 jobs through layoffs and attrition in the last six months. Its likely to get rid of 1,000 positions regardless of the bankruptcy. The bankruptcy is the culmination of years of problems after the county's debt ballooned from a federally mandated sewer project beset with corruption. That was coupled with interest rates rising as global markets plummeted. The county had been working since 2008 to avoid the cost and embarrassment of the bankruptcy filing.

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Thursday, November 24, 2011

Bham News: Jefferson County using capital money for daily operations

BIRMINGHAM, Alabama -- Cash-strapped Jefferson County lacks enough money to repair most roofs, elevators and heating units because money for capital projects is being used for daily operations, the county manager said. Tony Petelos described the situation as "a recipe for disaster" that could have long-term consequences. "We're taking the capital money for daily operations," Petelos said. "We are continuing not to reinvest in our infrastructure. Our infrastructure begins to deteriorate and fall apart. That's the fear that I have." The county's fiscal 2012 general fund budget is short $40 million, and officials are transferring capital money to the general fund to stave off cuts such as the closing of county departments. Petelos said the county desperately needs a fix from the Alabama Legislature. The county needs revenue to make up for the defunct occupational tax, which generated $66 million in fiscal 2010. Petelos said it's difficult for a government of Jefferson County's size to have no money in capital projects. "That's a recipe for disaster two, three, four years down the road when we are not replacing sheriff's cars, when we are not replacing roofs and air conditioners and making major improvements on our capital projects." Petelos pointed out several areas of immediate concern, including elevators at the 2121 Building, a 17-story tower in downtown Birmingham that houses the Jefferson County Personnel Board and other offices. He said the elevators are obsolete. "They don't make them anymore. It's on its last legs. We have four elevators in the 2121 Building, and we may have to shut two of them to steal the parts to fix the other two. We have roofs, air conditioners, heaters in need of repair," he said. Commissioner George Bowman, who has responsibility for the general services department, which handles building upkeep, said repairs are being done on "an as needed basis. We're fixing stuff as it breaks, as opposed to doing preventative maintenance which keeps it from breaking." Deputy Chief Randy Christian said the sheriff's office knows first-hand what happens when money is not available for capital projects. "We have had to live off a refurbished fleet of vehicles and a few used cars we found that we could get extra mileage out of," Christian said. "We will make them last as long as we can but eventually the chickens will come home to roost and something will have to be done." Christian said the office has had to face other challenges. "We have had problems with the jail elevators from time to time along with other maintenance issues that come with an aging building that is used 24/7, 365 days a year. "The roof at our headquarters building leaks during a heavy rain, and we have been told there is no funding to repair the HVAC system which is on the brink about half the time," he said. "These are really tough times, and we are piecing things together as good as we can. "Having said that, we also understand our job is to deal with it and soldier on. We are great when times are good and that standard will not change during difficult times. There are people out there that can't put food on the table, so putting a bucket under a leaky roof doesn't seem like such a big deal right now." Derrick Williams, director of the Jefferson Rehabilitation and Health Center, more commonly known as the county nursing home, said a leaky roof prompted staff to move residents from one area to another that was more secure. Williams said county officials came out to make sure residents were safe, "but there are no plans to redo the entire roof." Petelos, the former Hoover mayor, said that city had capital projects "we reinvested in every year to the tune of millions of dollars a year. That's not going on here in Jefferson County. "When you look at our depreciation schedule, we depreciate capital projects over $20 million a year. That's probably the amount we need to be reinvesting in the capital projects in the county," he said. "We're not doing that." Join the conversation by clicking to comment or email Barnett Wright at bwright@bhamnews.com.

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Wednesday, November 23, 2011

Bham News: Jefferson County could delay massive budget cuts planned for Dec. 1

BIRMINGHAM, Alabama -- The Jefferson County Commission will delay extensive budget cuts planned for Dec. 1 by at least 30 days while going after $10.5 million owed to the county by the sewer department and looking at other steps to generate revenue, officials said Tuesday. The county's fiscal 2012 general fund budget is short $40 million, and countywide reductions, including closing departments and reducing workers, were being considered to close the gap. Commission President David Carrington said testimony during a bankruptcy hearing this week revealed that the "sewer department owes the county some $10.5 million. I would hope that would be dealt with expeditiously. This is for services the county provides to the environmental services department." Carrington said that money would "solve $10 million" of the $40 million gap. "But realize that only solves a quarter of the problem," he said. "We still have to have a general fund fix." Receiver John S. Young, who operates the environmental services department, said the money is owed, but he needs to verify the exact amount. "I do owe them a substantial amount of money once we decide what the number is," Young said. "The judge has told me .¤.¤. 'You're not obligated to pay them anything until you agree on a number.' What I want to do is agree on a number quickly and write them a check for that number." County Manager Tony Petelos said he's "looking at ways that we can find one-time funds so that we can continue to operate the county." That includes the money from the environmental services department, he said. Another example: The sale of the Jefferson Rehabilitation and Health Center, more commonly known as the county nursing home, will generate $8 million, he said. Petelos said he also plans to declare the land at Ketona in Tarrant where the nursing home is situated as surplus property and put it up for sale. Those steps, in addition to transferring capital money to the general fund, could help the county stave off cuts for another month, Petelos said. He said the county still needs help from the Alabama Legislature in the form of replacement revenue for the defunct occupational tax, which generated $66 million in fiscal 2010. The loss of the job tax, coupled with the lack of a resolution to the $3.14 billion sewer debt crisis, led to the county's record-setting $4.23 billion bankruptcy filing this month. In the meantime, the struggle remains for the county to provide basic services, Petelos said. "We're going to be looking at ways to streamline the way we do business," he said. "We're looking at (terminating) the leases at the satellite courthouses. We're still paying. We're still under contract. As a last-resort effort, we are going to be looking at salary cuts, and we are going to be looking at layoffs. Those are things that we will have to do if we don't find enough money in other avenues." In another matter, Petelos said the state's new immigration law compounded with the county's bankruptcy filing could do "a tremendous amount of damage for Jefferson County and the state of Alabama." "With the burden that the immigration law puts on our work force, it adds more time as we're cutting staff," Petelos said. "We are having more workload with trying to determine exactly what we need to do with the immigration law. I know that law enforcement still hasn't decided uniformly throughout the state of Alabama how to handle this. It's a serious problem." Join the conversation by clicking to comment or email Barnett Wright at bwright@bhamnews.com.

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Wednesday, November 23, 2011

Bham News: Jefferson County sewer receiver's status still in question

The status of court-appointed sewer receiver John S. Young remained in limbo Tuesday, after a federal bankruptcy judge didn't rule on whether Young can retain control of the sanitary system's finances and operations. "I am not going to do anything today," U.S. District Judge Thomas Bennett said. "The issues are too complex." Young appeared at a hearing in U.S. Bankruptcy Court in Birmingham that was called to determine his fate. He filed papers with the court this month saying he should be allowed to keep control of the insolvent sewer system because he was appointed by an Alabama judge before Jefferson County filed for bankruptcy protection. County commissioners have argued the opposite, saying that municipalities filing under Chapter 9 of the bankruptcy code are granted broad rights. Chief among them, commission lawyers have argued, is the notion of "automatic stay" -- a legal principle that the debtor enjoys complete freedom from creditors and their agents the moment a bankruptcy is filed. Bennett on Tuesday told lawyers for both sides they have until Dec. 2 to file additional written arguments on the matter. This month, Jefferson County filed the largest municipal bankruptcy in U.S. history, citing $4.23 billion of liabilities. At issue are the revenues collected each month by the county sewer system. Right now, Young controls that money under a court order, after being appointed last year to provide independent oversight of the corruption-plagued sewers. That, however, is at odds with Chapter 9 practice, county lawyers argued. "The notion that even one dime should leave the door is premature," David Stern, a lawyer for the county, told Bennett. "Now that it is in Chapter 9, the county has to have control over its financial affairs." Stern also told Bennett that the county is capable of running the sewers without Young, a veteran of the water utility industry, and that the corruption that resulted in the criminal convictions of 21 elected officials and others has disappeared from the sanitary system. "The notion that you are leaving the sewer system with boobs and con men is just not true," Stern said. The matter is expected to come to a head at the end of the month. That is when Young's sewer office begins sending between $4 million and $5 million each month to creditors who own $3.14 billion in outstanding sewer bonds issued to expand and repair the sewers starting in 1996. That amount isn't enough to keep the county from being in a long-standing default on the bonds. But it does set up the first test of who controls the revenues of the sewer system. Gerald Mace, an attorney for the creditors, told Bennett that his side should prevail and control the money. Never before have revenues pledged from a specific source such as the sewer system been denied to the investors who lent the money in the first place, Mace said. He told Bennett the bond market will signal an immediate drop in confidence in Alabama debt if Young's arrangement is terminated. Bondholder rights, he said, are explicitly outlined in documents called official statements that accompany all new issues. "The market expects it and the official statement says it," Mace said. Bennett Tuesday encouraged the sides to forge an agreement on the monthly revenue stream absent a ruling from him. Lawyers huddled in groups in the court's foyer, but they were unable to reach a consensus. During the hearing, Young's attorneys attempted to portray the Jefferson County sewer office as being filled with buffoons. Sewer chief David Denard testified and acknowledged his office found 200 customers who weren't receiving monthly bills, even after Young's earlier effort found 300. The accounts were worth $1 million a year, Denard said. "They were primarily commercial," he admitted to Joe Conner, a lawyer for the receiver. Conner pressed Denard hard about the system's condition. Young testified Monday that 60 percent of the water treated at the county's plants has leaked into sewer pipes from outside, which he called double the industry standard. "You have got a serious problem with your manholes, don't you?" Conner said. "You have a serious problem with inflow and infiltration, don't you?" Young attended the hearing, sitting at one of the head tables with his lawyers. A former executive with American Water, the nation's largest investor-owned water utility, Young has been paid more than $1 million in the past 14 months overseeing the Jefferson County sewers. He was appointed after sewer bond investors grew tired of payment defaults, criminal convictions and a maintenance policy Young has described as "break and fix." His appointment by a Russell County Circuit Court judge came after bondholders secured a judgment against the sewer system and after the Jefferson County judges recused themselves. On the other side was County Commission President David Carrington and Commissioner Joe Knight. Both men and the three others on the panel took office last year, long after the sewer financing corruption occurred. "The sewer debt is much larger than can ever be serviced," said Stern, their lawyer. Judge Bennett seemed to agree, calling the debacle "a terrible problem" with no easy answer. "We could set rates at $500 a month for everyone," Bennett said during a discussion of legal issues with lawyers for both sides. "Then people wouldn't pay and would be shut off of the system." Bennett said the sewer system's best hope might be expanding, getting new customers from new geographic areas and access to new revenue. He also said he thought Young has done a "great job" operating the sewer, which serves about 150,000 customers and takes in about $161 million a year, according to the receiver's testimony Monday. Join the conversation by clicking to comment or email Hubbard at rhubbard@bhamnews.com.

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Wednesday, November 23, 2011

Birmingham Business Journal: Young’s status as sewer receiver unresolved

The status of court-appointed sewer receiver John S. Young remained in limbo Tuesday, after U.S. District Judge Thomas Bennett failed to rule on whether Young can retain control of the sanitary system's finances and operations. According to the Birmingham News, Bennett said issues in the case were “too complex” for a ruling on Tuesday. Young filed papers in U.S. Bankruptcy Court in Birmingham this month saying he should be allowed to keep control of the insolvent sewer system because he was appointed by an Alabama judge before Jefferson County filed for bankruptcy protection.

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Wednesday, November 23, 2011

Bloomberg BusinessWeek: Jefferson County Judge May Limit, Won’t Oust Sewer Receiver

Nov. 22 (Bloomberg) -- Jefferson County, Alabama’s sewer debt needs to be cut by about $1 billion and the state must back repayment of the remaining bonds to keep sewer rates affordable, the receiver running the sewer system said in court today. John S. Young Jr. was responding to questions from U.S. Bankruptcy Judge Thomas B. Bennett, who is holding a hearing in Birmingham to decide whether the county’s Chapter 9 filing limits Young’s power, including his ability to raise rates. “I’ve never seen that kind of significant debt per customer,” Young said about the $3.1 billion in bonds that county officials authorized related to the system in 2002 and 2003. In order to limit future rate increases to single digits, the system needs to reduce its debt by about $1 billion and Alabama would need to agree to treat the remaining debt as a “moral obligation” of the state. Earlier this year, Young proposed a 25 percent increase. The two requirements Young mentioned were part of a tentative agreement among county officials and state officials, the receiver and bondholders. That agreement fell apart earlier this month, leading to the bankruptcy filing. Young and sewer bondholders are in court in Birmingham trying to persuade Bennett to rule that he does not have authority under the bankruptcy code to limit the receiver’s power over the sewer system. Court Appointment Bennett said at the start of the two-day hearing that he isn’t being asked to oust the receiver, who was appointed by a state court on behalf of bondholders owed $3 billion. “No matter what happens today or tomorrow, I am not removing the receiver,” Bennett said. Limiting the receiver’s power still may give the county more influence over the sewer system and its ability to set rates. Young and bondholders claim that the county’s bankruptcy cannot change his authority to raise rates and run the sewer system in any way. Bennett said that means he is being asked to abstain from imposing any bankruptcy court control over the receiver, a request that may go too far. “What I am pointing out is that in your current request for abstention, it is way too broad, it is way too inclusive,” Bennett told lawyers at the start of the hearing. “I am not going to step into something that is not well focused.” Young testified after County Commission President David Carrington. Young and Carrington both testified about the history of the troubled sewer system and whether the county had the ability to take back control of the system. Bennett didn’t say whether he will rule immediately after the two-day hearing concludes, or wait to issue a written opinion. ‘Bargaining Position’ The court fight involves the bankruptcy code’s so-called automatic stay. The automatic stay generally prevents lawsuits and other legal actions against a debtor’s property, in this case, the sewer system. Wresting control of the system from the receiver would strengthen elected officials in the largest municipal bankruptcy filed in the U.S., lawyers not involved in the case said. “It gives them a stronger bargaining position,” said Dale Ginter, who represented retirees in the municipal bankruptcy of Vallejo, California. “The county certainly thinks it will increase their leverage, otherwise they wouldn’t do it.” ‘Potential Remedy’ Young said bond investors would be weakened if he were removed, losing “their biggest potential remedy, biggest potential solution to the problem.” In a Nov. 17 interview, Young said the system is probably worth less than $1.5 billion, based on its revenue stream. In the months before filing bankruptcy on Nov. 9, county commissioners negotiated with Young, bondholders and state officials. A tentative deal announced in September to cut about $1 billion from the sewer debt fell apart. The day after the case was filed, Young asked Bennett to verify his control over the sewer system, and its rates, arguing that the automatic stay in bankruptcy doesn’t apply. When a private company files a Chapter 11 case under the U.S. Bankruptcy Code, it can force a receiver to turn over property. Young claims Congress intentionally left that power out of Chapter 9, which governs municipal bankruptcies. He also says he is protected by the 10th Amendment of the U.S. Constitution, which says powers not held by the federal government are reserved for the states. Since a state court appointed him, Young argued, a federal judge cannot remove him. Bondholders’ Trustee County attorneys claimed in court papers that there is no constitutional conflict because Young isn’t acting on behalf of the state of Alabama or any public agency, but on behalf of the trustee for the bondholders, the Bank of New York Mellon Corp. The county wants the sewer system back in order to control rates for its 126,000 customers, said David Hooks, chief of staff to Commissioner Jimmie Stephens. Young has proposed a 25 percent rate increase, which is opposed by the county. Control of sewer rates is important because the bonds are so-called non-recourse debt, which means bondholders cannot force the county to pay them back. Bondholders can only be repaid by revenue from the sewer system, according to court documents filed by the county. “The county wants to make sure that rates are at a level that are reasonable and fair, but yet supports a reasonable level of debt service,” Hooks said in an interview. “The county should be in the position to control rates, not a receiver that was appointed on behalf of the creditors.” Should Young keep control, the county may be better off financially, Ginter said. It can simply walk away from the sewer bond debt and force bondholders to collect everything they are owed only from ratepayers. ‘Good Option’ “The county can let it go and say, ‘The receiver has that problem. I am going to just deal with my other debt,’” Ginter said. “That may not be good for the county citizens and ratepayers, but from a county fiscal point of view, I think it’s a good option.” Walking away from the sewer debt would be “a negotiating ploy, and a good one,” said attorney Mark Schwartz, who filed Harrisburg, Pennsylvania’s Chapter 9 case. Without any cooperation from the county, bondholders may be forced to battle in court to raise rates, he said. Abandoning any effort to help repay the bond debt may have long-term consequences for the county, Schwartz said. The bond market may refuse to lend to the county again, or make it very expensive for it to borrow, he said. Regaining control of the sewer rates would give the county more power when officials begin developing a plan to reorganize the county’s debt and exit bankruptcy control, Schwartz said. Municipal Bankruptcies Jefferson County is the 12th entity to file a Chapter 9 bankruptcy this year. Three filings were by municipalities: Boise County, Idaho; Central Falls, Rhode Island, and Harrisburg. The rest were special purpose districts, or public- benefit corporations eligible to use Chapter 9. Jefferson County supplanted Orange County, California, as the largest municipal bankruptcy. Orange County entered court protection in 1994 after losing $1.7 billion on interest-rate bets. While its petition initially listed more debt than Jefferson County, most of that liability was reduced in the early weeks of the case. The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). --With assistance from Martin Braun in New York. Editors: John Pickering, Stephen Farr To contact the reporter on this story: Steven Church in Wilmington at schurch3@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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Tuesday, November 22, 2011

Bham News: Jefferson County to delay major budget cuts to seek money receiver says it's owed

The Jefferson County Commission will delay massive budget cuts planned for Dec. 1 by at least 30 days while going after $10.5 million owed to the county by the sewer department and putting up for sale parcels of county-owned land, officials said today. Comission President David Carrington said testimony during a bankruptcy hearing this week revealed that the "sewer department owes the county some $10.5 million, I would hope that would be dealt with expeditiously," Carrington said. "This is for services the county provides to the environmental services department." Carrington said the financially-strapped county still needs about $40 million in cuts, but that money would "solve $10 million of that."

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Tuesday, November 22, 2011

Bham News: Jefferson County Bankruptcy judge Thomas Bennett says receiver John S. Young has done 'great job'

BIRMINGHAM, Alabama -- U.S. Bankruptcy Judge Thomas Bennett said today that court-appointed receiver John S. Young has performed very well since taking office last year. "I think the receiver has done a great job," Bennett said at a hearing over Young's fate in U.S. Bankruptcy Court in Birmingham. Bennett is conducting his second day of hearings to determine if Young should be exempt from the normal strictures imposed when Jefferson County filed for Chapter 9 bankruptcy protection this month. Bankruptcy stops outside interference with a debtor, but Young said his case is special because he was appointed by a sovereign court and is equal to a state officer. County commissioners want Young gone, while the creditors who had him appointed want him to say in control of the sewer system and its operations and revenues. Young was appointed by an Alabama judge to oversee the insolvent and corruption-ridden sanitary system that owes $3.14 billion to bondholders. Much of the discussion today has centered on the intractable financial calamity facing the sewer system. "We could set rates and $500 a month for everyone," Bennett said during a discussion of legal issues with lawyers for both sides. "Then people wouldn't pay and would be shut off of the system." Bennett said the sewer system's best hope might be expanding, getting new customers from new geographic areas. "It is just a terrible problem, not easy," Bennett said of the system's massive debt, insolvency and lack of access to new revenue. Bennett said he plans no ruling on an exemption for Young today. "I am not going to do anything today," he said. "The issues are too complex." MORE READING: Headlines on Jefferson County bankruptcy

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Tuesday, November 22, 2011

Bham News: Jefferson County sewer chief David Denard: 200 more 'ghost accounts' found after receiver probe

BIRMINGHAM, Alabama -- Jefferson County sewer chief David Denard said this morning his office found another 200 customers who weren't receiving monthly bills even after court-appointed receiver John S. Young's similar effort found 300. "They were primarily commercial," Denard said of his department's recent sweep of customer records, testifying at a hearing in U.S. Bankruptcy Court in Birmingham. All told, U.S. Bankruptcy Judge Thomas Bennett has heard of about 500 unbilled customers getting free sewer service from the cash-strapped system. Young said in court Monday his initial effort found 300 unbilled accounts. Bennett's task at the hearing is to decide if Young is eligible for an exemption to Jefferson County's $4.23 billion bankruptcy. Normally, a bankruptcy filing prohibits all outside interference in the debtor's affairs. But Young has argued he is entitled to an exemption because he was appointed to his post by an Alabama judge, after a lawsuit by bondholders owed $3.14 billion who wanted independent and professional oversight of their system. In its second day, the hearing is a sparring match. Young and his lawyers are trying to paint him as a highly trained professional with decades of experience in the water utility industry, who is required to upgrade a poorly managed sewer system suffering from decades of neglect. The county commission's lawyers are trying to portray Young, who earns $500 per hour, as an expensive add-on who is no longer needed. MORE READING: Headlines on Jefferson County's bankruptcy CORRECTS total number of unbilled accounts

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