As the news highlights daily, risky borrowing and creative financing are leaving many American families struggling to keep their heads above water.  As if to add insult to injury, those same woes are now impacting local governments.  A report in The New York Times this week indicates that Jefferson County, Alabama, population 662,047, is preparing for a possible bankruptcy filing.  As reported, this would be the largest municipal bond default ever in the United States, “outstripping the Washington Public Power Supply System’s $2.25 billion default in 1983 of revenue bonds sold for nuclear plants.”

 

How did Jefferson County (which includes Birmingham) find themselves in this position?  Reports are the County unsuccessfully sought to refinance debt that it amassed building a sewer system that it now says it cannot afford.  “More than $3 billion of the bonds, including $2.2 billion of so-called auction-rate debt, have interest that resets frequently, a strategy intended to hold down costs. That backfired when the fallout from the credit crisis pushed the county’s rates as high as 10 percent.”

 

Now more than ever water systems and other public agencies are coming to terms with the reality that they must get their financial house in order.  Unfortunately for many in drought-impacted areas of the Southeast, that may mean delaying new projects aimed at attracting development through expanded capacity, keeping the community’s economic engine humming.  It may also mean raising water rates or adjusting pricing structures to make up for lost revenue needed to operate.

 

While these are never popular or easy decisions for elected officials, commissioners, or board members, it seems much preferred to leaving a legacy of bankruptcy.  Seeking financial advice from credible and trusted sources helps to validate and support these decisions when the community raises concerns.  What is your agency doing to protect the investment your community has made in its water system?