By Melinda Dickinson
BIRMINGHAM, Alabama (Reuters) - A court-appointed manager of Jefferson County's debt-ridden sewer system should have full authority over the operation's finances, an Alabama judge ruled on Friday.
The order by Judge Albert Johnson will also give John Young, the county's water manager, or "receiver," access to tens of millions of dollars of sewer revenue and said "the county has no authority over the existing accounts."
The order is likely to bolster Young's power as he seeks to use a portion of sewer revenue to maintain and improve the sewer system.
A $3.2 billion bond debt related to the sewer system threatens to push the county into what would be the largest municipal bankruptcy in U.S. history.
The dispute between Young and Jefferson County is a minor part of the overall sewer debt crisis, and revenue for capital expenditure on the system will not interfere with money slated for debt-service payments, a senior county official and analysts said.
"There should be no further debate as to the receiver's sole and exclusive right and authority to control all accounts related to the system and system revenues," Johnson said in his ruling.
Jefferson County's main city, Birmingham, is also the largest in Alabama. The county is a significant driver of the state's economy.
Young asked Johnson this week for permission to form a private corporation called Jeffco Receiver Funds Inc., financed with $60 million from a dual-use fund in the sewer system.
Young earlier told Reuters the prospective corporation would aim to raise fresh bonds for the sewer system's maintenance that did not have the tarnished name of Jefferson County.
"He (Young) is attempting to separate the assets of the sewer system in the event of Jefferson County declaring Chapter 9 (bankruptcy) would be my take on it," county Finance Commissioner Jimmie Stephens said.
"He is attempting to position himself ahead of our creditors," he told Reuters.
County officials told the judge this week it is illegal under Alabama law to put public money into a private corporation, but Friday's ruling appeared to side with Young over the issue.
That said, Johnson did not authorize the establishment of the corporation.
The dispute is a further sign of a deteriorating relationship between the county and Young, who was appointed by the court in 2010 to oversee the sewer system's finances on behalf of the Bank of New York Mellon, the trustee for the creditors.
The ruling will likely have minimal impact on the question of whether the county can resolve its crippling debt. Jefferson County is engaged in behind-the-scenes talks that aim to settle the debt's terms.
(Reporting by Melinda Dickinson; Writing by Matthew Bigg, Editing by Kevin Gray and Jan Paschal)