Jefferson County Bankruptcy a Blow to Long-Suffering Birmingham

Birmingham, Alabama, the most prominent industrial center in the Southeast before the civil- rights era, has been on a long losing streak that just got longer.

In 1997, Daimler AG (DAI) opened a Mercedes-Benz factory in Vance, one county west of the state’s biggest city. Honda Motor Co. put a plant to the east, Toyota Motor Corp. (7203) to the north and Hyundai Motor Co. (005380) to the south. Birmingham lost its minor-league baseball team to a suburb in 1987, and the Iron Bowl football game in 2000. Plans for an entertainment district foundered. The city’s population plummeted almost 13 percent since 2000, even as the state grew.

Birmingham is also the seat of Jefferson County, which filed the biggest municipal bankruptcy in U.S. history under the burden of more than $3 billion of sewer-system debt. The so- called Magic City may need a big trick to persuade residents and businesses that its days of losing are over.

“I hate that we filed for bankruptcy -- it’s that whole continuation-of-a-stigma thing,” Steve Mitchell, a 52-year-old Alabama native who works in health-care banking, said at a downtown food court. “There’s this negative connotation, and we’ll be viewed that way.”

Birmingham was once a manufacturing center whose steel furnaces lit the night sky. A 56-foot statue of Vulcan, the Roman god of the forge, looks down on the city from a 124-foot pedestal that rises from Red Mountain, where he holds aloft the tip of a newly hammered spear.

Dynamite Hill

In 1960s, the city became infamous when violence against civil-rights demonstrators made it synonymous with brutal racism. One neighborhood suffered so many attacks with explosives it was called Dynamite Hill, and the city earned the epithet “Bombingham.”

Over the ensuing years, its steel-making industry withered and its housing and infrastructure decayed. In 2010, the city had a population of 212,237, down 12.8 percent since 2000, according to the U.S. Census Bureau. Jefferson County, which encompasses 33 municipalities, had 658,460 people.

The slide to bankruptcy began in 1996, when the county was forced to rebuild its sewer system after pollution was found spewing into rivers. Risky derivative financing for the project backfired beginning in early 2008, leading the county to become one of the biggest casualties of Wall Street’s credit crisis.

Birmingham’s mayor said he knows he must pull his city out of Jefferson County’s shadow.

That’s Not Us

“We are a separate entity,” Mayor William Bell, a former county commissioner who took office in January 2010, told reporters yesterday. Birmingham’s “financial status is very sound. We have more than enough money to carry out our day-to- day operations.”

Birmingham, with 4,160 employees and a $371 million general-fund budget for 2011, carries Moody’s Investors Service’s third-highest bond rating at Aa2.

Jefferson County’s bonds are rated 14 levels lower: Caa1, below investment grade.

The county’s revenue in the fiscal year that ended in September totaled $152.5 million, down from $207.2 million the previous year. The county has cut about 450 positions since June to bring the workforce to 2,687 employees. More cuts are coming next month, Commission President David Carrington has said.

Mayor Bell said he’ll meet with heads of businesses beginning next week to clarify the city’s financial standing and to distance it from the bankrupt county.

Soldiering On

Birmingham’s companies have struggled along with the region. City-based firms compose almost 90 percent of the Bloomberg Economic Evaluation of States’ Alabama stock index based on market capitalization. So far this year, the index has fallen about 24 percent, compared with about 1 percent for the Standard & Poor’s 500.

Brian Hilson, president and chief executive officer of the Birmingham Business Alliance, which serves a seven-county area, said he’s concerned that employers may be deterred from moving to or expanding in the city.

“While there is and should be concern about the Jefferson County government, life goes on and work goes on,” he said.

The mayor isn’t giving up. While there is talk among city leaders that sewer-rate increases might drive business away, Bell said a company he couldn’t name promised 250 jobs by year’s end.

Higher Borrowing

Any higher borrowing costs resulting from the county’s fiscal crisis won’t deter plans for revenue-generating projects such as a new hotel, Bell said. The city is spending almost $60 million to build a stadium and create other enticements to lure back the minor-league team, the Birmingham Barons.

Residents are torn as to what bankruptcy will mean.

“It’s a sad day for Birmingham and for Jefferson County,” said Sophia Faulk, owner of Sophia’s Deli and Catering across the street from the county’s offices. “I’ve never seen people so unhappy.”

Scott Pierce, who came to Birmingham more than 20 years ago to attend college and never left, runs a website called WhyBHM.com where he posts testimonials of residents explaining why they’ve moved here. Pierce doesn’t anticipate a shortage of stories.

“While this is frustrating, the larger sentiment from me is I’m glad something has finally been decided,” he said. “Whether this has been the best path for the county to take, at least somebody’s taking a path. At least somebody’s making a move.”

Hilson of the Business Alliance said the city, which has weathered so much, will outlast this storm.

“All of the positive attributes of the community in time will overshadow what has happened and is happening now, but that’s going to take some time,” he said. “It’s certainly not going to be an overnight fix.”

To contact the reporters on this story: Esme E. Deprez in Birmingham, Alabama at edeprez@bloomberg.net; Margaret Newkirk in Birmingham, Alabama at mnewkirk@bloomberg.net; Gigi Douban in Birmingham, Alabama, at gigidouban@gmail.com

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.