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Water board objects to ‘overly broad’ proposal to put receiver in charge

<i>WALA</i><br/>The Prichard Water & Sewer Board has objected to a proposal by Synovus Bank to appoint a receiver with sweeping powers over the troubled utility. Attorneys for the board argue that proposal would violate the Alabama Constitution and state law.
Arif, Merieme
The Prichard Water & Sewer Board has objected to a proposal by Synovus Bank to appoint a receiver with sweeping powers over the troubled utility. Attorneys for the board argue that proposal would violate the Alabama Constitution and state law.

By Brendan Kirby

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    MOBILE, Alabama (WALA) — The Prichard water board has filed an objection to an “overly broad” proposed order setting out the powers of an outside expert that a judge said he would appoint to run the troubled utility.

Mobile County Circuit Judge Michael Youngpeter earlier this month sided with Synovus Bank, which manages the $55.78 million that the bank borrowed on the bond market in 2019. The judge agreed the Prichard Water Works & Sewer Board failed to comply with the terms it agreed to when it borrowed the money, and he agreed to appoint a so-called receiver. But he asked both sides to file written arguments about the scope of that appointment.

The bank weighed in with a proposal to give the receiver sweeping powers to hire and fire, bring in outside consultants and make decisions on spending – all without needing approval of the board members appointed by the Prichard City Council. The receiver even would be able to sell or transfer all or part of the system to another public entity.

Youngpeter is expected to issue his final order soon.

In a court filing last week, the board argues such powers would violate the Alabama Constitution and state law.

“The Proposed Order grants the receiver powers that well exceed an allowable scope under applicable law,” attorneys for the board wrote. “The Proposed Order is overly broad in that it strips power away from public officials and a public entity appointed and created by the duly elected governing body of the City of Prichard.”

The utility’s lawyers argue that the bank failed to prove that there is an “emergency” that requires the appointment of a receiver before a full-blown trial on the matter. They wrote that the mismanagement of the system was “exacerbated” by “former bad actors, who are no longer employed” by the utility. That is a reference to former operations manager Nia Bradley and two other former employees, who have been charged with stealing hundreds of thousands of dollars.

The board notes that testimony at this month’s hearing makes clear that the bondholders never have missed a payment. What triggered the default proceedings was a failure to make full payments to a bond fund used to make those payments. The system has paid the lenders by dipping into a reserve fund.

The utility placed blame for that on legal fees charged by the bank’s lawyers at rates, in some cases, as high as $1,125 an hour – a combined sum of $822,217. That is roughly a third of the outstanding debt service owed to the lenders.

“Testimony also demonstrated that but for the payments by the Trustee for its unreasonable attorneys’ fees, PWWSB would have remained current on its principal and interest payments,” the board wrote.

The system has been “diligently pursuing appropriate corrective action to cure any potential Event of Default,” the utility wrote, pointing to a 22 percent rate hike that takes effect this week. That will boost revenue in the current fiscal year to $14.4 million, sufficient to cover the debt service payment and repay the reserve funds.

The water board also takes issue with the man that Synovus wants to serve as receiver, John Young Jr., a former water company executive who has experience working with other troubled utilities.

“The evidentiary Hearing demonstrated Young is not an objective or neutral party,” lawyers wrote, pointing to testimony that the bank has communicated with him for months. The board argues that the receiver “can’t serve both the Court and Synovus.”

The lawyers point to several proposed powers that they argue would violate state law. For instance, they wrote, any hiring or firing of employees must adhere to the policies and procedures of the Mobile County Personnel Board.

The bank’s proposal “removes any control from the duly appointed public entity,” the water board attorneys wrote, and “usurps the statutory grant of power to PWWSB; and, therefore, conflicts with Alabama law.”

The board also argues that the receiver proposed by Synovus would result in “loss of corporate memory” and force the system to take on additional expenses. According to testimony, Young charges $300 plus expenses.

“This does not serve justice,” the board’s lawyers wrote. “Instead, it places an additional burden on an already overly burdened system.”

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