In a world going down the proverbial toilet, there springs to life a new story of interest that's well worth the read: Alabama's Jefferson County to get receiver: Judge

BIRMINGHAM, Alabama (Reuters) - An Alabama judge said on Tuesday he would appoint a receiver to oversee the sewer system revenues of debt-ridden Jefferson County, in a setback for county authorities.

The Bank of New York Mellon, trustee for the county's creditor banks, won its request for the appointment of a receiver empowered to raise sewer revenues to repay more of the county's $3.2 billion debt.

"There was no dispute of the facts at hand. There was no reason not to grant the Bank of New York's request," Judge Albert Johnson told a hearing. Johnson is to interview possible receivers ahead of an appointment.

Jefferson County, which is home to the state's largest city, Birmingham, is fighting to stave off what would be the largest municipal bankruptcy in U.S. history.

The county accrued the debt in the mid-2000s. It escalated in 2008 when variable and auction rate swaps were devalued and in the fallout from the crisis several prominent county officials were jailed for corruption.

The bonds were originally intended to refinance a federally mandated upgrade to the county sewer system.

County officials said earlier this year they were working toward a negotiated settlement with creditors.

The county opposed the appointment of a receiver on the grounds that it represented outside management of a vital department and also because in its view, residents can ill afford a sewer bill increase.

"The only thing we can do is hope for the best and that the receiver will be prudent in raising rates. My biggest fear is that with immediate increases, rate payers will suffer," said County Commission President Bettye Fine Collins.

The county's 600,000 residents face some of the highest sewer rates in Alabama. Some residents in older neighborhoods, who are often on lower incomes, pay several hundred dollars per month.

Raising rates by a certain percentage will not raise revenues by an equivalent amount as many residents will simply lower their water usage, said Commissioner Jim Carns, who oversees the department that includes the sewer system.

Tuesday's announcement came after years of legal wrangling, in part over whether the issue should be heard in federal or state court.

Some residents pay several hundred dollars PER MONTH for water/sewer service. That's some expensive poop! This might be the funniest thing I've read in the world of broke municipalities. There's no way low income earners can afford such rates long term.

Let's also consider, "Raising rates by a certain percentage will not raise revenues by an equivalent amount as many residents will simply lower their water usage." Am I the only one who's envisioning residents using their back yard among other places to go number 1 or 2 to save money? Sorry about that visual, but it needed to be said.

This is a somewhat unique situation that could trend over the next several years to a municipality near you! Transit municipalities could raise fare rates to cover bond payments. Ditto for water, trash and bridge municipalities. It's because most municipalities are bulging in debt that's no longer supported because bubble tax revenues are gone and current expenses (mostly payroll and benefits) are more than revenues which leaves nothing for debt service on bonds. And union employees won't take a roll back in pay and benefits to help cure expense drive budget deficits. Municipalities could be forced by bondholders to tax you to death.

But let's look at this particular case because the actions of the judge should force some unintended consequences or issues.

First: If it costs more to maintain a home and you have higher sewer system payments, that lowers the value of your house because the cost to maintain it went up, lower values will bring more people in Jefferson County into the upside down club and eventually foreclosure.

Second: What's to stop someone in Jefferson County from moving one county over or one state over. If you're broke and paying several hundred dollars per month and facing a rate hike, it's just a matter of when you move. It's just math.

If people move, that means less sales tax revenue from lower retail sales and lower real estate taxes because there will be more properties on the market for sale versus demand, which causes lower values thus lower taxes. The judges action could exacerbate the budget deficit issue in Jefferson County quite easily.

Lastly: For those who are broke but decide to stay in Jefferson County but chose not to pay their sewer bill because they're not paying their real estate taxes, insurance, or mortgage payment, that creates another issue. With more and more people moving into the upside down club everywhere, why would anyone who's not making loan payments bother to make sewer system payments? When the house finally gets taken back by the bank, the bank will not only have a property worth less than what's owed, but probably have to pay back taxes, home owner association dues, and now past sewer bills. Yes, this also could exacerbate the losses for banks in those situation.

In this fun world we live in, every solution for municipal deficits creates 2 more problems, which in turn creates 2 more issues, it's just a linear equation based on simple math stemming from a bubble correction.

All I can say is the municipal turd is rolling down hill, will it land on you soon.

Hope all is well.