A ruling from the Internal Revenue Service on a proposed refunding of debt has hindered plans by Bergen County, N.J., to dissolve a controversial utilities authority.

At issue is a proposal by Republican county executive William Schuber to eliminate the Bergen County Utilities Authority. Schuber says the authority wastes taxpayers' money, and that other county agencies can handle the authority's tasks more efficiently.

Schuber's opponents, including those in his own party, viewed the proposal as an attempt to consolidate the county executive's power and boost his chances for re-election.

In any event, the arcane laws surrounding municipal bond issuance may be having the final say.

Officials in the county executive's office said on Friday that they scuttled the plan to eliminate the authority after the county got an unfavorable ruling from the IRS on a refunding of authority debt.

In order to dissolve the agency and satisfy its bondholders, the county needed to refund approximately $310 million of authority debt. The plan called for the sale of non-exempt county debt that would be used to refund two types of authority revenue bonds: solid-waste revenue securities and water pollution control revenue bonds.

But county officials now confirm that the IRS has not bought into the plan. In effect, the IRS has told officials that a refunding may violate federal limits on the number of times an issuer can refund tax-exempt bonds.

As a result, if the county wants to eliminate the agency, it will probably be forced to refund the agency's tax-exempt bonds with more costly taxable debt.

The IRS "didn't say we cannot do" a refunding, said Jerry Binney, chief of staff for the county executive's office. "But we can't go to market if the bonds could be taxable."

Binney would not release the ruling, and an IRS spokesman declined to comment.

Binney said that the county is also hesitant to carry out the refunding because high interest rates in the municipal bond market make the issue unaffordable.

But Binney added that even under favorable market conditions, the county cannot proceed without a favorable IRS ruling. He described the IRS's findings as a "no-ruling ruling," which didn't give the county enough confidence that a refunding of authority debt could be done legally and tax free.

A refunding using taxable bonds could increase overall debt service on the issue by as much as $35 million, according to an estimate provided by the authority's financial consultants.

It is not clear now what will happen next to the utilities authority. Schuber, a Republican, is running for re-election in November, and will be challenged by Democrat Edward Hynes.

Members of Schuber's staff, such as Binney, maintain they still support the theory of eliminating the utilities authority, pointing to investigations that show inefficient management of garbage disposal at the agency has cost taxpayers millions of dollars in additional charges.

Larry McClure, the authority's executive director, said he doesn't think plans to eliminate the agency were worth the effort. The proposal so far has cost the county several million dollars in lawyers' fees and fees for other consultants to study the matter, McClure said.

Schuber was unavailable for comment.

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