Alabama Governor Loses as State’s Economic Capital Goes Bankrupt

Tally the losers in last week’s record municipal bankruptcy by Alabama’s Jefferson County and Governor Robert Bentley might be near the top of the list.

The first-term Republican, who supported a filing during his campaign, became the most prominent advocate for any other option by the time the county that includes Birmingham, the state’s economic engine, gave in.

The more-than-$4 billion filing is another challenge to a state buffeted during Bentley’s 11-month tenure. In April, tornadoes left more than 230 dead. In June, the governor signed an immigration crackdown that attracted scathing editorial criticism, protests and a campaign of mockery from comedian Stephen Colbert. Even football isn’t immune: The University of Alabama lost its No. 2 ranking this month after Louisiana State University beat it in a home game.

“One of the challenges for any political leader is that they come into office having things they want to do and then run into a whole list of developments and circumstances,” said David Fleming, president and chief executive of Operation New Birmingham, a nonprofit group that works on economic development. “The quality of a good elected official comes from how they respond to that.”

The county of 658,460, the state’s most populous, filed for bankruptcy after years of financial distress caused by a botched refinancing of sewer renovations. The area’s economic health is crucial to the state. Birmingham-based firms compose almost 90 percent of the Bloomberg Economic Evaluation of States’ Alabama stock index, based on market capitalization.

‘Ill Prepared’

The inability of the state and county to reach a deal with creditors reflects the 68-year-old Bentley’s inexperience and lack of power in the Legislature, where he formerly served and which was crucial to a settlement, said Larry Powell, a University of Alabama at Birmingham communications professor and former political consultant.

Bentley encouraged commissioners not to go into bankruptcy “and I think he was a little shocked when they actually did it,” Powell said. “He came into this job ill-prepared, and he still hasn’t learned the ins and outs of dealing with the Legislature.”

The governor, he said, “is just not very good at this yet.”

Art of the Possible

Others say Bentley did what was possible. He inserted his top finance official into negotiations, cajoled commissioners into delaying a decision twice and -- when a tentative deal was forged in September -- promised a legislative session to deliver the state’s part of the deal.

“I’m not sure even George Wallace, if he was alive and in his prime, could have done” what was needed, said William Stewart, emeritus professor of political science at the University of Alabama in Tuscaloosa, in a phone interview.

Wallace, best known for physically blocking black students from the university’s doors in 1963, was the strongest governor in state history, Stewart said.

Though it’s little consolation, Jefferson County never would have been within striking distance of a deal without Bentley’s efforts. The governor’s proposal to offer a form of state backing for a refinancing was the linchpin of the preliminary settlement, John Young, the receiver overseeing the sewer system, said in September. The backing would have lowered the county’s financing costs by as much as 2 percentage points for an estimated savings of more than $1 billion.

“That was a game-changer,” Young said at the time.

Outsider In

Bentley won office in what Powell and Stewart both describe as a fluky election. A Tuscaloosa dermatologist and Sunday school teacher, Bentley had been a minority member of the state House of Representatives since 2002, where he concentrated on legislation related to medicine.

He won the Republican gubernatorial primary only because his opponents “sort of killed each other off,” said Powell, the communications professor.

“Around here, we call him the Accidental Dr. Governor,” said Joseph Baker, 30, founder of I Believe in Birmingham, a group involved in planning issues. Bentley ran as an outsider and that is “his biggest weakness,” Baker said in an e-mail. “He has largely been unable to move the Legislature to his side.”

When Bentley took office, Jefferson County had been under fiscal strain more than three years, unable to pay $3.14 billion in sewer debt owed to bondholders led by JPMorgan Chase & Co. (JPM) The county’s problems deepened in March, when the state Supreme Court threw out a local wage tax.

Matter of State

Bentley’s campaign support of bankruptcy faded: He said in public statements that he had learned that it would hurt the entire state. By July, he loaned Finance Director David Perry to help with negotiations. In September, after the outlines of an agreement had been reached, he promised to call a session.

Bentley had two conditions. The first was a signed final agreement. The second was unified support among the county’s 25 legislators. The state allows a single lawmaker to block local laws.

A deadline for an agreement came and went in October. The county and creditors remained $140 million apart, County Commission President David Carrington said Nov. 8.

Nor could the legislators agree. In October, the county’s legal publication, The Alabama Messenger, ran advertisements for 10 conflicting bills from the county delegation.

Bentley’s Diplomacy

Bentley tried to bridge the gap, said Patricia Todd, a Democratic state representative from Birmingham. She said he met separately with Democrats and Republicans. He listened respectfully, and lawmakers appreciated his courtesy, she said.

Calling in legislators “would have been a waste of hundreds of thousands of dollars,” said Perry, now Bentley’s chief of staff. “It would make no sense to call a special session knowing that it would fail.”

Powell, the former consultant, said Bentley should have forged an alliance with Republicans from other counties, ignored the tradition of staying out of local business and forced a solution for the good of the state.

Stewart, the emeritus professor, said Bentley didn’t have the leverage.

“I wish someone could have done that,” he said. “This hurts us all.”

To contact the reporters on this story: Margaret Newkirk in Atlanta at mnewkirk@bloomberg.net.

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

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