Alabama county ratepayers say sewer bankruptcy settlement too pricey

BIRMINGHAM, Ala., July 21 Mon Jul 21, 2014 6:03pm EDT

BIRMINGHAM, Ala., July 21 (Reuters) - Lawyers representing ratepayers in the Jefferson County, Alabama sewer debt bankruptcy told a federal judge on Monday that the terms of a settlement are unconstitutional and will cost the ratepayers too much money in coming years.

In late 2013, Jefferson County closed a $1.78 billion sewer bond deal to end what had been the biggest U.S. municipal bankruptcy prior to Detroit's. The ratepayers filed a lawsuit that contests the plan, saying the 40 years of rate increases it imposes will be too high a cost for sewer and water ratepayers.

"We didn't steal nothing; why should we have to pay it back?" asked Sheila Tyson, a Birmingham City Council member representing one of the poorest districts in the county.

County lawyers said the agreement is a done deal that even a federal judge has no right to unwind, a position Judge Sharon Blackburn found "shocking."

Creditors took a $1.4 billion cut in the adjustment plan.

The question the judge will decide is if the settlement violates the U.S. Constitutional. Calvin Grigsby, lawyer for the ratepayers, cited the 10th Amendment, saying powers not claimed by federal authorities belong to the people. Grigsby said separately that ratepayers should have been able to vote on the settlement, regarding the rate increases.

Still, if she rules in their favor, Blackburn said, she does not see what relief she can give to the ratepayers, as the bond buyers are "innocent parties" who legally purchased the debt in good faith.

"The judge didn't want to hear what we had to say. That is the way we have been treated all along," Tyson said after the hearing.

Representatives of the ratepayers said the total debt increased to $14 billion, including interest, instead of decreasing under the adjustment plan. County lawyer Matt Lembke said they are not comparing apples to apples, but rather short-term costs to long-term ones. (Reporting By Verna Gates; Editing by Steve Orlofsky)

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