November 11, 2011 / 12:42 AM / 8 years ago

Alabama county's consumer rates rocketed up with debt

BIRMINGHAM, Alabama (Reuters) - Residents of Alabama’s Jefferson County pay sewer rates that are 329 percent higher than they were in 1996 and the fees will rise as the county works its way out of the largest U.S. municipal bankruptcy.

Like the torrid accumulation of overwhelming debt that on Wednesday led local officials to bankruptcy court, the climb in fees first bubbled up in the 1990s with a proposed fix to safeguard drinking water from raw sewage escaping old pipes.

Initially estimated to cost about $300 million, that overhaul of the sewer system eventually cost $3.14 billion because of financial missteps, political corruption and frequent and costly corrections in construction.

For some, Jefferson County’s skyrocketing sewer rates are of little consequence. The county stretches over rolling hills in the north central part of the southern U.S. state and contains some of the richest neighborhoods in America — it even boasts a Saks Fifth Avenue store.

But for others on low incomes in Birmingham, the city at the county’s heart, sky-high sewer rates fuel political activism and stir anger at decisions taken by county officials.

“If a civilian acted in a manner this deliberately irresponsible with their personal finances, they would be convicted of fraud,” said Stacey Gordon, a pediatric cardiology administrator.

“Elected officials need to get the message that passing the buck to their constituents by raising utility bills or taxes to cover debt they incur is not a workable or sustainable solution to bad fiscal policy,” Gordon told Reuters on Thursday.

The monthly misery experienced by sewer ratepayers when the bill comes due began with corruption associated with construction of new sewer projects in the late 1990s as well as repairs mandated by the federal government.

The county government estimated that repairs would cost $300 million and in 1995, the county began letting contracts. But decisions over those repairs, which involved issuing construction contracts, were riddled with corruption.

Some 22 people, including government workers and elected officials, were found guilty of corruption crimes, such as taking cash payoffs, free trips and remodeling of personal properties.

Former Birmingham Mayor Larry Langford was convicted in 2009 of 61 federal counts of bribery, money laundering, mail and wire fraud, conspiracy, and filing a false tax return tied to defaulted sewer refunding warrants. Langford is serving a 15-year prison sentence.

Jefferson County’s debt escalated in the mid-2000s when bond issuance deals to upgrade the sewer system went bad.

Costs ballooned as interest rates rose, and the county had teetered on the edge of insolvency since its debt was downgraded in 2008. With more than $5 billion in total indebtedness, the Chapter 9 filing on Wednesday surpassed that filed by Orange County California, in 1994.

Current Birmingham City Councilwoman Kim Rafferty was among those who challenged the county’s sewer expenditures as wasteful. She observed crews laying lines to houses that were soon to be razed for an airport expansion.

(Editing by Bob Burgdorfer)

Additional reporting by Verna Gates in Birmingham

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