Not Such A Sweet Home, Alabama

Birmingham, Alabama is facing the largest municipal bankruptcy in U.S. history, and the blame is flying in Ken Wells's lengthy and informative article in Bloomberg this morning.

In its 190-year history, Jefferson County, Alabama, has endured a cholera epidemic, a pounding in the Civil War, gunslingers, labor riots and terrorism by the Ku Klux Klan. Now this namesake of Thomas Jefferson, anchored by Birmingham, is staring at what one local politician calls financial “Armageddon.”

The spectacle -- a tax struck down, about 1,000 county employees furloughed, a politician indicted over $3 billion in sewer debt that may lead to the largest municipal bankruptcy in history -- has elbowed its way up the ladder of county lore.

“People want to kill somebody, but they don’t know who to shoot at,” says Russell Cunningham, past president of the Birmingham Regional Chamber of Commerce.

One target of their anger is Larry P. Langford, who was the county commission’s president in 2003 and 2004 and is now mayor of Birmingham. The 61-year-old Democrat goes on trial today, charged in a November 2008 federal indictment with taking cash, Rolex watches and designer clothes in exchange for helping to steer $7.1 million in fees to an Alabama investment banker as the county refinanced its sewer debt.

Jefferson County’s debacle is a parable for billions of dollars lost by state and local governments from Florida to California in transactions done behind closed doors. Selling debt without requiring competition made public officials vulnerable to bankers’ sales pitches, leaving taxpayers to foot the bill for borrowing gone awry.

The great news? Birmingham isn't alone. Not by a long shot...it's only the most visible disaster. Tons of other local and county governments played the credit default swap roulette game too, and as rising unemployment and foreclosed homes eat into the remaining tax revenue, a whole mess of other places are going to find themselves in similar economic positions over the next year or two. The results are going to be catastrophic to state budgets, which in turn will be catastrophic to the national one.

You thought 2009 was bad? Just wait. Cities and counties across the country will have no choice but the wholesale elimination of services and jobs. It'll only get worse from here.