They were fined or made restitution totaling about $48 million, and individual sentences ranged from probation to 15 years.

Penalties for J.P. Morgan Chase

In addition, J.P. Morgan Chase & Co. agreed to pay $75 million in penalties to the U.S. Securities and Exchange Commission and to forfeit $647 million in fees after two of its bankers paid more than $8 million to get county bond rate swap business.

The EPA agreement put the county in charge of both the larger trunk lines it had operated as well as the smaller lines that collected residents’ wastewater in its 33 municipalities, including Birmingham, giving  the county “over 2,000 miles of local sewer lines that had never been properly operated and maintained,” Young says in an interim report issued in June.

But the overhaul had no plan, no priorities, no design, no scheduling and no budget, “which led both to substantial and wasteful cost overruns and a failure to eliminate all problems related to sewer system overflows,” he says.

The initial estimate was $250 million to $1.2 billion, but is now an estimated $2.7 billion and the county “still has not achieved full compliance with the consent decree,” he says.

To pay for the work, the county went on a borrowing spree, “increasing the system’s debt load by more than 1,000% between 1995 and 2003,” but with no long-range payment plan, he says.

Traditionally hands-off on user rate increases, the county agreed to annual automatic rate increases but, when debt service payments increased in 2002 and 2003, started refinancing fixed-rate debt with variable-rate and auction-rate debt and did interest rate swaps with several banks, ignoring consultants advice to raise rates, Young says.

When market rates crashed in 2008, the county could not make its payments and remaining warrants were declared "junk" status, at a comparatively high risk of default. Two bond insurers and investors took the county to court for default and commissioners soon approved an indefinite suspension of all future rate hikes.

In 2008, Young had been named one of two Special Masters to examine the legal, economic, business, infrastructure and capital improvement issues for the water system. A report, filed in 2009, led to a federal court ruling the county in default.