Jefferson County, Alabama, home to the state’s largest city, Birmingham, is the latest municipal government to declare bankruptcy and the biggest municipal bankruptcy in U.S. History. A deal to settle the county’s more than $3 billion in red ink fell apart, prompting County Commissioners to declare bankruptcy in a 4-1 vote. Jefferson County’s actions follow other bankruptcies in Harrisburg, Pennsylvania; Vallejo, California and Central Falls, Rhode Island.
The decision to file for bankruptcy will no doubt imperil Birmingham’s regional economic development efforts as well as those of the state of Alabama. On the ground it will likely mean cuts in public services, infrastructure improvements and the size of the municipal workforce. Jefferson County’s plight involves issues of fraud and public corruption, but the implications of these events should not be viewed in isolation. Across the nation local governments are stressed under the weight of a fiscal crisis that threatens the often delicate financial balance undergirding cities and metropolitan regions. As of April of 2010 the Birmingham-Hoover, Alabama metropolitan statistical area had a population of more than 1.12 million and had grown 7.2% since the 2000 census. Birmingham’s ability to attract new businesses and residents and compete in an increasingly globalized inter-urban competition for capital investment and growth will be impacted by Jefferson County’s woes. Despite the boundaries that separate Birmingham and the incorporated and unincorporated localities of the Birmingham metropolitan region, Jefferson County’s bankruptcy shows the inherent interdependence of local government.
Local governments are place based enterprises that seek to maximize their relative mix of taxing regimes and infrastructure/service delivery to attract new businesses and residents who will in turn enhance the community’s value, both in real property terms and in its relative brand position. Many operate off a “if we build it, they will come” approach and leverage future revenue streams to finance infrastructure and service improvements that are the necessary pre-conditions for business and population growth. Fluctuations in property values and the taxable income of residents can upset the projections and calculations used to support bond-financed improvements. When public corruption is added to the mix, the results can be disasterous.
The role of municipal boundaries in determining who will be taxed and who will benefit from the redistribution of municipal tax revenue cannot be overstated. Historically, the politics around the formation and reformation of municipal boundaries have reflected the nation’s race and class struggles. These factors are related to urban sprawl and intra-regional municipal fragmentation. Of the many negatives that flow from fragmentation is the proliferation of multiple municipal governments in a given metropolitan area, the duplication in government functions and a lack of coordination in government’s ability to respond to metropolitan region-wide problems. For several decades now many local government law scholars have argued for more regional approaches to metropolitan governance, touting its social, financial and general functional benefits. While Jefferson County’s problems apparently stem from a range of issues – some of them isolated factors, the specter of the nation’s municipal government financial crisis begs a reconsideration of regional governance measures that ultimately can lead to more efficient, responsive and cost-effective local governance.
Jefferson County’s road to bankruptcy is profiled here: http://www.reuters.com/article/2011/11/10/us-usa-alabama-jeffersoncounty-idUSTRE7A94CP20111110