The Largest Bankruptcy in the Nation's History

2008-08-11T17:45:56Z

This is a rare public posting on what is mostly a Friends Only blog...

It is a political rant of a local nature, and while I don't condone airing the soiled linens publically, it seems that only public scrutiny, and a sincerely hacked off voting public who, one can only hope, will send these jokers packing, will achieve results.

Remember folks: Politicians are just like cockroaches; they prefer to do their business in the dark while you're not looking....

I don't live in Jefferson County, Alabama. I pay taxes to *work* in Jefferson County as well as taxes to the City of Birmingham...though I don't live here and cannot vote in the local elections (Taxation without Adequate Representation, anyone?)

I digress..

that's not what I wanted to call attention to here. While reading yesterday's paper, and an article on how David Bronner, the Chief of the Retirement Systems of Alabama( RSA)--which I am a contributor to, as well as every teacher, researcher, administrator within the University and school systems-- has proposed a plan to "bail out" the county for the Current Debacle and Complete MisManagement with a little hint of Malfeasance dropped in for good measure: he wants the RSA to buy the Sewer System.

Jefferson County now owes some $100 Billion (no, that is not a typo) to it's bondholders...they're past due, and have the third extension since March currently going. They have until November 7th, I think, to come up with a way to pay fro this behemoth.

The architect of this nightmare is the Jefferson County Commission, a larger more public group of whores I dare you to find anywhere, and their Pimp In Charge, Bill Slaughter. After getting the county residents into this mess, Slaughter now has a "plan" to rescue it--although why anyone with a whit of sense would listen to the man who got you into this mess is beyond me.

Mr. Slaughter proposes a hike in the Occupational tax, taking surplus from the $0.01 sales tax increase (that was meant for school construction), and an increase in property taxes--all of which must meet a threshhold or the coutny can raise property taxes to create more funds. That's right, Jefferson County, the money grubbing simpletons you elected want you to grant them the power to ARBITRARILY raise your property taxes WITHOUT the required referendum.

They want more of your money to piss away...and have the unmitigated gall to appear entitield to it.

There were "public hearings" this week for the residents of the county to hear three plan options. They were "public" as people were allowed to come: they could not ask questions, the commissioners themselves were not part of the panel, and more than a few protestors were asked to "leave".



Hearings frustrate, educate residents Bankruptcy option on minds of audience Saturday, August 09, 2008 BARNETT WRIGHT News staff writer A two-hour hearing held Friday to address Jefferson County's $3.2 billion sewer debt turned contentious as some county residents voiced frustration that they were not able to speak and wondered why elected officials weren't the ones answering questions. At least one of the 250 audience members inside Samford University's Wright Center was escorted from the building after confronting Birmingham lawyer Bill Slaughter, the county's top financial adviser. Still, Jefferson County Commission President Bettye Fine Collins said after the hearing, which she attended, that she was pleased that the public got a chance to hear about the county's financial problems and submit more than three dozen written questions. Later in the day, a second forum attended by more than 50 people was held at the Jefferson County Courthouse and hosted by Hollis Wormsley, a personality on WBHK 98.7 KISS-FM's "Talk Back." Many of the questions at the Samford University forum centered on whether the county would file for a Chapter 9 municipal bankruptcy. "This was not a political rally," Collins said. "This truly was the County Commission's effort to provide the public with information they can digest." The program was moderated by former Gov. Albert Brewer, professor emeritus of law and government at Samford University. The panel included Scott Williams, a bankruptcy lawyer with the Birmingham law firm of Haskell Slaughter Young & Rediker; Jeff Sewell, assistant Jefferson County attorney; and Guy Logan, of Citigroup Global Markets Inc. Haskell Slaughter has done bond counsel work for the county since 1997. Citigroup is advising the county in negotiating the restructuring and refinancing of its sewer debt. Williams told the audience that a sale of the sewer system might not be possible under the state constitution. The audience was also told that sewer rates could double or even triple in a bankruptcy. The courthouse meeting's panelists, including some of the same people who took questions at Samford, spoke against bankruptcy and receivership, and touted a proposal from Citigroup as the only viable solution. "At the end of the day, no one will be 100 percent satisfied, but right now we are running out of time," Commissioner Shelia Smoot said at the courthouse. "That is not political rhetoric. This is not posturing." Audience members at the Friday evening meeting submitted written questions, too. At the end of the meeting, they were allowed to address the panel from a lectern. Several expressed frustration at the possibility of paying higher sewer rates, an option included in the proposed plan if the system fails to produce enough revenue otherwise. Other revenue generators in the Citigroup plan include expanding who must pay the county's occupational tax to include doctors, lawyers and other professionals; extending the school sales tax; and imposing additional sales and property taxes if needed. "Everyone in the county benefits from the sewer system," said Mark Ezell, a lawyer with the Haskell Slaughter law firm. "The Citigroup plan is an effort to spread the burden among residents of the county." Competing plans: Competing plans to address the problem have split the County Commission. Earlier this week, commissioners voted 3-2 for a plan formulated by Citigroup and Slaughter. To move forward with that plan, Gov. Bob Riley would have to call the Legislature into special session to approve changes for the plan, and there would have to be a statewide vote on a constitutional amendment. But Riley has said he would not call a special session unless the commission has the support of Jefferson County lawmakers for a remedy to the crisis. Collins, Smoot and Commissioner George Bowman support the Citigroup plan. On Friday, Citigroup offered an alternative to the automatic property tax increase proposed in its earlier plan by suggesting 4 percent annual increases in sewer rates after 2012 if sewer system revenues fall short of the amounts needed for debt payments. Commissioners Jim Carns and Bobby Humphryes favor a plan by Alabama pension chief David Bronner that calls for the county to declare bankruptcy and let the Retirement Systems of Alabama or another entity buy the system for $1.1 billion to $1.4 billion in cash. Smoot was the only commissioner to attend the evening courthouse meeting. Only Collins attended the entire morning presentation at Samford, in which none of the commissioners participated or was recognized. Carns and Humphryes left midway through the forum. Smoot showed up after the meeting began and Bowman was not present. Carns called the program "hogwash." He said the panelists were people who "just arrived at the dance. I've been studying this for over three years." Rate rise disputed: He disputed a comment that sewer rates would skyrocket in a bankruptcy. "Nobody anywhere in the country is going to come in and triple rates in Jefferson County," he said. "Forty percent of ratepayers in Jefferson County fall in the EPA guidelines of no more than 2 percent of your family income should be paid for sewer." Kent Piatt, a Hueytown resident, said he was angry that county commissioners were not part of the panel. "They have been sitting on their hands for six months," he said. "They are going to do what they want to do. What infuriates me most is that I had to listen to a panel of people I didn't elect." Linda Lunsford, a Hoover resident, said she favored the Bronner plan until listening to the speakers on the program. "The panel was authoritative," she said. "They knew their stuff." Tommy Greene, chairman of Birmingham-based Citizens for Sewer Accountability, a group formed to oppose the Citigroup plan, said the commission was repeating past mistakes. Wall Street banks should "participate in solving the problem," he said. "They have to share in the pain. The plan that the commission has put forth will mortgage our future for our children and will put a tremendous tax burden on the citizens of the county." News staff writer Joseph Bryant contributed to this report. bwright@bhamnews.com © 2008 The Birmingham News© 2008 al.com All Rights Reserved.

The deal here is, the RSA can only buy the system if the County declares bankruptcy, thereby putting the sewer in recievership and taking control from the County Commission. Which appears to be the sticking point: Mr. Bronner has offered to sell the system back to the County, with no profit margin built in. But this quote, from one of the Commissioners really REALLY steamed me: "Why would we want it back?" Collins said. "Who would want to repurchase the sewer system unless he wants to pump a lot of cash into it?" (News article below--bolding is mine)



Bronner plan adds buyback provision Commissioners dismiss RSA's same-price offer Sunday, August 10, 2008 RUSSELL HUBBARD News staff writer Alabama pension chief David Bronner said he is willing to sell Jefferson County's sewer system back to the government at no profit, after the Retirement Systems of Alabama earns a fair return and gets the system financially fit and out of debt. The head of the state's public employee pension fund said he would give the county the option of buying back the system after seven years. "They could have it back for the same price I paid for it," Bronner said. "Not a penny more." County Commission President Bettye Fine Collins said she wouldn't want the sewer system back if the RSA buys it. "Why would we want it back?" Collins said. "Who would want to repurchase the sewer system unless he wants to pump a lot of cash into it?" Collins favors a competing rescue plan from New York investment bank Citigroup that calls for refinancing the county's debt and finding new sources of revenue to cover the cost of those bonds. She is among a majority of commissioners who have warned that a Chapter 9 bankruptcy filing would stigmatize the county. Bronner, whose $32 billion pension fund has invested in everything from golf courses to nursing homes, has proposed RSA buying the debt-strapped sewer system for $1.1 billion to $1.4 billion if county commissioners are willing to file bankruptcy. Buying the sewer system back from RSA would require the county to borrow more money by selling bonds just a few years after filing what would be the largest municipal bankruptcy in U.S. history. That is not an impossible task. Orange County, Calif., filed the largest U.S. bankruptcy in 1994, defaulting on $1.6 billion. The county recovered an investment-grade credit rating and was selling bonds to eager investors at normal borrowing costs less than a year later. "Municipal finance is a very competitive business," said Jeffrey Cohen, a Denver lawyer who worked on the Orange County case. "Underwriters and bond buyers would be falling over themselves to lend money to Jefferson County once it cleans up its balance sheet." Not everyone agrees. County Commissioner Shelia Smoot said a bankruptcy would hurt the county, the state and all of its municipalities for generations, staining them as deadbeats who walk out on their debts. "Bankruptcy?" Smoot said. "Not an option. Period. It would rip the face of this county forever." Effect on bondholders: A Jefferson County bankruptcy filing would get rid of the claims of bondholders who are owed $3.2 billion after the county began missing interest and principal payments this year because interest rates skyrocketed. By agreeing to accept partial settlement in bankruptcy court, the bondholders would have no course of legal action against the county, Cohen said. Under a bankruptcy and purchase of the sewer system by RSA, those bondholders would get RSA's purchase price as partial satisfaction of their claims. Those bondholders would then be free to sue or negotiate with bond insurers for their remainder. The insurers pledged to pay off the bonds if the county can't in return for insurance premiums the sewer system paid. Bronner said the sewer system surely would be worth more than the RSA purchase price after seven years, because it would have more customers, additional assets and no debt. Here is how his plan would work: The county files for Chapter 9 bankruptcy on the sewer system's $3.2 billion of debt owed to bondholders who lent money by buying bonds sold for expansions and repairs. RSA buys the system for a price that Bronner said will probably fall between $1.1 billion and $1.4 billion, payable in cash. He said he won't know an exact purchase price until he looks at the sewer system's books in detail. Bondholders take the purchase price and wrangle with the bond insurers over their remainder. The sewer system operates as before. Its yearly free cash flow - the money left after paying expenses and for capital improvements - would belong to the RSA, which invests money to pay for the pensions of 300,000 active and retired state workers. After seven years, the county could sell bonds to repurchase the sewer system at the price RSA paid for it. Bronner said if seven years is too soon, he would agree to the same terms 15 years out. Expert: No stigma: Cohen, the Denver lawyer, said the large banks that arrange bond deals and the big investors who buy into them won't hesitate to do it again if Jefferson County files for bankruptcy and then attempts to sell bonds again. "It's not like personal bankruptcy," Cohen said. "Underwriters would work overtime to put a syndicate together because they want the fees." In Orange County's case, they didn't seem to mind. The county filed for bankruptcy in December 1994, to stem soaring investment losses from bad bets on the direction of interest rates. While that county didn't have the equivalent of Jefferson County's sewer revenue shortfall, it was selling bonds six months later. In June 1995, it sold $279 million of fixed-rate bonds that paid investors 5.2 percent interest. That was a few percentage points higher than the 3 percent bonds it had been selling before the bankruptcy. And even though Orange County was still in bankruptcy, and still in technical default on numerous obligations, the June bonds were rated AAA, the highest investment grade ranking, by Standard & Poor's. News staff writer Barnett Wright contributed to this report. rhubbard@bhamnews.com © 2008 The Birmingham News© 2008 al.com All Rights Reserved.

"Why would we want it back?" Collins said. "Who would want to repurchase the sewer system unless he wants to pump a lot of cash into it?"

*blinks* So, Madame Commissioner. The ONLY way you'll want this back is if more money is pumped into it? Why? So you can take somethign with value and trash it like you do everything else good in this county?

I stand corrected: the Commission is a Haggling bunch of whores.

Here's the truth: there is only so much time to get something done. The County's bonds have been downgraded to Junk--who's going to buy muni bonds here if they don't declare bankruptcy? Who in their right mind would see this bunch of con-artists as something to invest in? Bankruptcy is ugly, but bear in mind it's not the same as personal bankruptcy--and the time is coming very soon where bondholders will no longer grant you extensions and the bill collector will come knocking....

Mischief Musings

The Largest Bankruptcy in the Nation's History

Hearings frustrate, educate residents

Bronner plan adds buyback provision