Sunday, August 17, 2014

Lessons from Jefferson County


Critical Infrastructure

The top potential dangers voters face with local government is its tendency to ignore basic infrastructure.  They do this at their peril and at our expense and they do it all sloppily. If not maintained, water treatment systems, roads and bridges end up costing a lot more to repair. They also overuse Bonds, ensuring that everything costs double. They need to spend less on fluff and boilerplate and pay more attention to these priorities.

 

Sewers and Bonds

Jefferson County Alabama spent $3.3 billion on their sanitary sewer system due to a series of events.  The EPA took charge of this sanitary sewer system and mandated that the county build a new one. The design was over-the-top and the costs were outrageous.  Variable-Rate Bonds turned into an instrument of destruction when interest rates went up in 2004 and the County got caught with a big interest rate increase on the Bonds.  The County declared bankruptcy. The county doubled water bills and outlawed all septic tanks to force all county residents on to the new sewer system.   Property values plummeted.  The average monthly household sewer bill in 1992 was $9.78, is currently $67.56 and is projected to be $104.12 by 2020. See below for a full update:

 

Norb Leahy, Dunwoody GA Tea Party Leader

 

Jefferson County sewer construction scandal

The Jefferson County sewer construction scandal encompasses $3.3 billion spent on repairs, upgrades and expansions of the Jefferson County sewer system, made in part to comply with a 1996 consent decree drafted to ensure future compliance with the federal Clean Water Act. A 2003 study found that much of the money was misspent, costing rate payers hundreds of millions of dollars in unnecessary expenditures. Due to the project's enormous costs, county-wide sewer rates have increased markedly, from among the lowest in the country to the highest, and are projected to continue indefinitely in order to service outstanding debts.

Furthermore, several county officials have been prosecuted for corruption in contracts related to sewer projects, and a series of increasingly-complicated interest rate swaps carried out by the County in efforts to reduce overall debt service have backfired, causing the filing of the largest municipal bankruptcy in U. S. history.

In 1993 attorney Bart Slawson filed a lawsuit (Kipp, et.al. v. Jefferson County) against the county on behalf of residents near the Cahaba River alleging that the county's sewer system was spilling and overflowing during heavy rains, allowing large amounts of untreated wastewater to enter the Cahaba River, a source of drinking water for much of the region (the Cahaba River Society joined the suit after it was filed). The plaintiffs documented over 4,000 specific violations, which prompted a the United States Department of Justice to investigate and follow suit with United States v. Jefferson County, Alabama, Jefferson County Commission, and the State of Alabama.

The county settled both lawsuits in the United States District Court for the Northern District of Alabama by signing a consent decree in December 1996. The county agreed to make the improvements necessary to satisfy the United States Environmental Protection Agency (EPA) that the system complied with the federal Clean Water Act. Other terms of the agreement required the county to spend $30 million for the establishment of protective greenways to improve water quality in the Cahaba and Black Warrior River systems and to pay a civil penalty of $750,000. Altogether, the cost of complying with the decree was estimated to be $1.2 billion

Though major construction is complete as of 2008, the EPA still has scores of documented infractions which need to be addressed before they can certify full compliance with the consent decree. On April 18, 2008 District Court Judge J. Foy Guin, Jr certified that the county had met the requirements for the smallest of nine affected systems, affecting the Warrior River.

Super sewer

While the lawsuit against the system was progressing, planners from the Jefferson County Department of Environmental Services, headed by Jack Swann, were studying the merits of various expansion projects not specifically required by the consent decree. They defended the expansions as needed for economic development and to increase the number of ratepayers who would share the costs. Swann said the county would count all projects to improve the performance of the system as "court-ordered". Activists from the Cahaba River Society argued that less than half of the County's expenditures were going toward correction of the faults identified in the lawsuit.

The largest single project was an $84 million plan to provide new sewer service to the Upper Cahaba Watershed around Cahaba Heights and parts of Mountain Brook. The "Cahaba Trunk Sewer", popularly dubbed the "super sewer" when it was first discussed in 1992, would entail construction of a major trunk line from Grants Mill Road to the Cahaba River Wastewater Treatment Plant in Hoover. As planned, the new trunk sewer line would cross underneath the river a dozen or more times along its route. Critics of the plan immediately challenged not only the risky proposition of tunneling under the Cahaba River, but also the need for such an enormous project which could only encourage overdevelopment of the environmentally-sensitive watershed area. Following the consent decree the project was shelved until it was quietly resumed in 1999 with work in the Altadena Valley.

Swann and the Jefferson County Commission proceeded with construction, however, and saw projected costs swell to over $140 million. In late 2000 the revived project came to public attention when the County began buying rights of way needed near U. S. Highway 280. Construction was halted in July 2002 when the Birmingham Water Works Board, which owns easements along the river, asked for new risk-assessments. Engineers found less solid rock under the riverbed than they had expected. Meanwhile public outcry led the Jefferson County Commission to initiate more public hearings on the plan. Swann protested that the delays were costing ratepayers $15,000 per day and that halting the project would cost another $6.5 million. The Health Department challenged the planners' interpretation of their report on septic failures and called for a comprehensive land-use plan to determine actual needs and an independent risk assessment for the tunnel scheme.

2003 report

After a series of reports in the Birmingham News brought public outcry, the Jefferson County Commission hired BE&K engineering to review the sewer construction program and report its findings. The result, presented in October 2003, showed numerous serious shortcomings in management of the program as well as questionable decisions made by county officials.

Specific findings included:

  1. No actual plan or strategy was ever drafted for how to prioritize projects, resulting in wasteful expenditures on projects with little return. (such as the super sewer)
  2. None of the project's managers or consultants had experience with projects of similar scope.
  3. The accounting systems used by the environmental services department and the finance department were different, allowing as much as $100 million in "accounting discrepancies" to accrue.
  4. Unusual agreements with consultants and contractors with little protection for public funds in case of default or cancellation.
    The report recommended that the county hire a project manager to oversee the completion of the sewer upgrades and to offset fast-climbing sewer rates by increasing property taxes and development fees.
    Prosecutions
    In the Summer of 2005 a multi-count indictment naming 21 defendants was filed by the Federal Bureau of Investigation (FBI) in connection with alleged bribery, conspiracy and obstruction of justice. As of April 2008 fifteen individuals have been convicted of bribery.
    Officials
  1. Chris McNair (Jefferson County Commission), convicted December 2006, pleaded guilty during appeal in February 2007, sentenced to 5 years imprisonment in June 2007, but later freed after he was granted a new trial.
  2. Gary White (Jefferson County Commission), convicted on 9 counts, but granted a new trial
  3. Mary Buckelew (Jefferson County Commission), agreed to plead guilty to obstruction of justice in exchange for cooperation with investigators.
  4. Jack Swann, (Director of Environmental Services), sentenced to 102 months imprisonment and $350,000 in restitution to the County. Currently free on appeal.
  5. Harry T. Chandler (Assistant Director of Environmental Services), sentenced to 2 years probation and a $33,000 fine
  6. Ronald Wilson (Chief Engineer for Environmental Services), sentenced to 13 months imprisonment and a fine of $250,000. Released February 2008.
  7. Clarence Barber, former County Maintenance Chief, sentenced to 5 months imprisonment. Scheduled for release in June 2008.
  8. Larry Creel, sentenced to probation.
     
    Contractors
  1. Sohan Singh (U. S. Infrastructure), sentenced to 78 months imprisonment, currently free on appeal.
  2. Ed Key (U. S. Infrastructure), currently free on appeal.
  3. U. S. Infrastructure, fined $6.7 million and $426,254 in restitution
  4. Civil Engineering Design Services (owned by Robert Wilson), fined $80,000
  5. Pat Dougherty, (Dougherty Engineering), sentenced to 51 months imprisonment and $4 million in fines and restitution
  6. Dougherty Engineering, fined $3.8 million
  7. Bobby Rast (Rast Construction), sentenced to 51 months imprisonment and a $2.5 million fine, currently free on appeal.
  8. Danny Rast (Rast Construction), sentenced to 41 months imprisonment and a $1 million fine, currently free on appeal.
  9. Rast Construction, fined $1.7 million
  10. William Dawson (Dawson Engineering), sentenced to 4 months imprisonment and $35,000 in fines, released Fall 2007
  11. Grady Pugh, Jr (Roland Pugh Construction), sentenced to 5 months imprisonment and a $2 million fine. Released in October 2007.
  12. Roland Pugh (Roland Pugh Construction), sentenced to 45 months imprisonment and $250,000 in fines, currently free on appeal.
  13. Eddie Yessick, sentenced to 2 years imprisonment to begin June 18, 2008.
 
Rates
Most of the sewer work was contracted with bond money to be repaid by increased sewer rates. As expenses have mounted, the county's schedule for increasing rates has had to follow suit. The county's authority to set rates is established by the Alabama Constitution. In case of delinquency, the County can attach a lien to the properties served.
In 1997 the Commission adopted an ordinance which would automatically increase rates each January. The amount of the yearly increase would be set by the County finance director in order to meet rate covenants which were made with bond issuers to hold down interest rates. In addition to the yearly increase, the Commission adopted two mid-year increases (March 1, 1999 and April 1, 2001). Twice the commission reduced the finance director's proposed January increase (2004 and 2005).
Average monthly residential sewer bills in Jefferson County are based on typical usage of 10000 cubit feet of water per household minus a 15% credit for water not returned to the sewer :
  1. 1992: $9.78 ($1.15/ccf)
  2. 1993: $11.48 ($1.35/ccf)
  3. 1994: $12.24 ($1.44/ccf)
  4. 1995: $13.43 ($1.58/ccf)
  5. 1996: $14.71 ($1.73/ccf)
  6. 1997: $15.13 ($1.78/ccf)
  7. 1998: $15.98 ($1.88/ccf)
  8. 1999: $18.70 ($2.20/ccf)
  9. 2000: $21.08 ($2.48/ccf)
  10. 2001: $25.85 ($3.04/ccf)
  11. 2002: $30.01 ($3.53/ccf)
  12. 2003: $35.31 ($4.15/ccf)
  13. 2004: $38.84 ($4.57/ccf)
  14. 2005: $50.41 ($5.93/ccf)
  15. 2006: $55.42 ($6.52/ccf)
  16. 2007: $58.40 ($6.87/ccf)
  17. 2008: $62.90 ($7.40/ccf)
    A pair of "special masters" appointed by District Court Judge David Proctor concluded that sewer rates would have to be increased by 400% to meet 2009 debt obligations. Among their recommendations to the county was raising rates by as much as 25% per year and eliminating the 15% credit for water not returned to the sewer. If imposed, Jefferson County's sewer rates would quickly become the highest in the nation.
Rather than raise rates as recommended, the county defaulted on payments while seeking other means of reducing its indebtedness. In a suit filed by the Bank of New

York Mellon, trustee over much of the system's obligations, Circuit Court Judge Albert Johnson appointed New Jersey Water Works executive John S. Young as receiver, granting him power to administer, operate and protect the system -- including the power to raise rates. Young's recommendations, made in Spring 2011, included raising sewer rates by as much as 25% in the first year, with additional increases dependent upon other measures taken to reduce the county's indebtedness.

In September 2011 the county agreed on a tentative plan which would cap future rate increases at 8.2% per year for three years, and 3.25% per year after that. When negotiations with creditors faltered in November, the county declared bankruptcy, putting control of the sewer system into the hands of Judge Thomas Bennett.

A deal with a majority of creditors was announced in June 2013. Under that agreement, sewer rates would go up 7.41% per year for four years, and then could be raised up to 3.94% per year thereafter, not counting future bond issues for additional capital projects, regulatory compliance and/or inflation. By that reckoning, rates could be expected to increase as indicated:

  1. 2013: $62.90 ($7.40/ccf)
  2. 2014: $67.56 ($7.95/ccf)
  3. 2015: $72.57 ($8.54/ccf)
  4. 2016: $77.95 ($9.17/ccf)
  5. 2017: $92.73 ($9.85/ccf)
  6. 2018: $96.38 ($10.24/ccf)
  7. 2019: $100.17 ($10.64/ccf)
  8. 2020: $104.12 ($11.06/ccf)

 
References

  1. Rosen, Dorah (1993) "Sewercide". Fun & Stuff
  2. Howell, Vickii (September 24, 2000) "Jeffco sewer rates rising to finance system repairs." The Birmingham News
  3. Blackledge, Brett J. and Vickii Howell (June 10, 2001) "Third of sewer costs not ordered by court." The Birmingham News
  4. Bouma, Katherine (August 1, 2002) "Report criticizes supersewer research." The Birmingham News
  5. Crook, McDowell (August 10, 2002) "Unearthing truth on sewers: Meeting allows officials to explain need for project." Birmingham Post-Herald
  6. Blackledge, Brett J. (September 16, 2003) "Report points to misspent millions management cited; taxpayers may see rates rise till 2011". The Birmingham News
  7. Torres, Ailene (July 14, 2005) "Did corruption drive up debt?" Birmingham Post-Herald
  8. Geiss, Chucj (July 28, 2005) "Naked Birmingham: Publisher's Notebook." Black & White
  9. Bouma, Katherine (January 19, 2008) "EPA fines Jefferson County for sewage overflows, refuses to certify expansion as complete." The Birmingham News
  10. Hansen, Jeff (March 9, 2008) "Jefferson County, Alabama sewer debt grew into crisis." The Birmingham News
  11. Hansen, Jeff and Eric Velasco (March 23, 2008) "Jefferson County sewer debt crisis contained key players." The Birmingham News
  12. Archibald, John (April 17, 2008) "Rats leave sewer, but not streets." The Birmingham News
  14. Wright, Barnett (April 5, 2009) "Special masters ordered to review the Jefferson County, Alabama sewer system have filed a $797,224 bill." The Birmingham News
  16. Wright, Barnett (September 22, 2010) "Judge appoints John S. Young receiver over Jefferson County sewer system." The Birmingham News
  17. Dickinson, Melinda and Matthew Bigg (September 16, 2011) "Alabama county backs deal to settle $3.14 billion debt." Reuters.
  18. Walsh, Mary Williams (June 4, 2013) "A County in Alabama Strikes a Bankruptcy Deal." The New York Times DealB%k blog
    Source:http://www.bhamwiki.com/wiki/index.php?title=Jefferson_County_sewer_construction_scandal

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