By Verna Gates and Melinda Dickinson
BIRMINGHAM, Alabama (Reuters) - Alabama's Jefferson County on Tuesday approved a sewer-system rate hike of about $2 a month for most customers that the county's top official described as a key step toward emerging from its $4.23 billion bankruptcy.
The rate hike will be the first since 2008 and equals a rise of about 5.2 percent over five years, based on the county's average monthly sewer bill of $38 for about 126,000 customers.
"This is the first step in the process" of emerging from bankruptcy, Commission President David Carrington said after the vote. "The next step will be a plan of adjustment. We hope to file the plan sometime this winter. We are actively working on the plan."
Wall Street creditors, in a motion filed ahead of the county commissioners' unanimous vote, denounced the rate hike as trivial and asked the judge overseeing what is America's biggest municipal bankruptcy to give them a new shot at getting sharply higher customer rates.
Former sewer system receiver John Young, who ran the long-troubled system until early 2012 under a state court order won by creditors, last year recommended much larger, but politically unpopular, 25 percent annual increases in rates for three years.
Bondholders-trustee Bank of New York Mellon said in a filing made late on Monday that the fee hikes - effective next March and hammered out after public hearings - lagged inflation and hurt bondholders.
Bondholders, including some who still draw some payments from the system's revenues after expenses, argued that the county's rate hike badly trailed national trends that increased by more than 26 over five years.
The trustee lawyers asked U.S. Bankruptcy Judge Thomas Bennett to lift a stay under the county's Chapter 9 bankruptcy. The stay blocks most legal claims and prevents creditors from pushing for higher rate hikes in a state court.
Creditors argued in the filing that the county's method for setting its pending rates fell well short of including all actual costs, did little to repay the systems more than $3 billion of debt, and trailed increases at other utilities.
"Stated simply, every day that goes by without implementing an appropriate rate increase constitutes a diminution in the trustee and warrant holders' interest," David Lemke, Larry Childs and other creditor lawyers said in the filing.
The creditor lawyers also asked the judge, if he does not allow the creditors to file in state court, to require Jefferson County to implement higher rates capable of paying back debts as a condition of keeping the Chapter 9 stay in place.
Nearly a year ago, Jefferson County -- whose seat of government is Birmingham, Alabama's biggest city -- filed for Chapter 9 bankruptcy after a tentative agreement with creditors fell apart. That deal might have delivered a $1 billion reduction in the county's debts.
The creditors and Jefferson County, whose finances were ravaged by the sewer-system debt, political corruption and the loss in 2011 of a local jobs tax worth $60 million a year to the local government, are in negotiations on workout terms that must ultimately be approved by Bennett.
(Writing and additional reporting By Michael Connor in Miami; Editing by Leslie Adler)