Jefferson County failed to find buyers for sewer debt for the second time last week, meaning interest charges could increase as much as $5 million a month.
A Wall Street auction on $784 million of Jefferson County sewer debt failed last week, pushing interest charges the county must pay each month as much as $5 million higher, a county financial disclosure revealed Wednesday.
The county’s so-called “auction-rate securities” failed to attract buyers at a Feb. 14 auction, causing interest rates on various portions of the debt to increase from 2.08 percent to between 3.08 percent and 10 percent, according to the disclosure document to be distributed to county commissioners today.
It marked the second time this month that Jefferson County has failed to find buyers for auction-rate bonds, causing monthly interest payments to soar, as the fallout from the nation’s subprime mortgage crisis spreads into other credit markets such as municipal bonds.
That $5 million is on top of a $7 million increase earlier in February.
Earlier this month, the interest rate on $221.3 million in sewer bonds increased to 10 percent, from 3.06 percent in January. That transaction cost the county an extra $7 million a month in interest payments.
And it’s only going to get worse:
The substantial increase in interest payments likely will cost taxpayers and sewer rate payers tens of millions of dollars extra this year and has the county studying all options, ranging from restructuring its debt to selling the sewer system to, as a last resort, reorganization under bankruptcy laws.
The county was paying about $11 million a month in interest on its total debt. The auctions that have failed so far could boost that amount to as high as $23 million a month with increasing interest rates.
The rates likely will continue to rise throughout the year, according to the document. [emphasis mine]
County commission members aren’t supposed to be talking about any of this right now, but ratepayers will likely get the message loud and clear in their upcoming sewer bills.