Birmingham’s Acting Mayor Says Budget Is Underfunded by $20M

BRADENTON, Fla. — Birmingham’s current budget is underfunded by $20 million, the new acting mayor announced yesterday in a disclosure that could lead to a review of the Alabama city’s double-A credit rating.

Acting Mayor Carole Smitherman told the City Council yesterday that finance director Steve Sayler had resigned and that she had discovered “the finance office knew when we passed the budget for this year that the budget number would fall $20 million short of the amount needed by the city’s departments.”

“Clearly, the council was not given the information it needed to deal with the budgeting process,” she said.

Smitherman became mayor last week after former Mayor Larry Langford was convicted on 60 federal felony charges related primarily to his tenure as president of the Jefferson County Commission when $3.2 billion of sewer debt was refinanced.

Sayler, who testified in the trial, could not be reached for comment.

The City Council feuded publicly with Langford for several months this year before adopting the fiscal 2010 budget.

Smitherman said that the city is in “sound financial condition” with a reserve fund of $160 million, in addition to $41 million for debt service.

However, she said her examination of financial statements since becoming mayor revealed that every year since 2000 the city has used reserve funds to meet expenses that could not be met with current year revenues.

“For a decade, the city has been living out of its savings account,” the mayor said. “Obviously, this practice is not good business.”

Smitherman said she has appointed a budget task force to examine the city’s finance department and has talked with rating agency analysts and assured them that the city’s finances are sound.

Birmingham’s general obligation bonds currently are rated AA-minus by Fitch Ratings, Aa3 by Moody’s Investors Service, and AA by Standard & Poor’s. Fitch and Standard & Poor’s also assign a stable outlook to the city’s credit.

“As of now the city’s rating remains AA,” Standard & Poor’s analyst Edward McGlade said yesterday in an e-mail. “We will review the credit once we receive audited documents from the city as well as an updated presentation from the city regarding the outcome of the task force, etc.”

Moody’s vice president Geordie Thompson said his agency also is looking into Birmingham’s budget problems.

“We do want to understand exactly what the issues are with this budget gap,” Thompson said. “The new mayor said they have healthy reserves and that is true. Going forward the issue for us is what they are going to do to close that gap and will that carry forward beyond 2010?”

Fitch declined to comment.

Smitherman’s task force, which holds its first meeting today, is headed by John McMahon, chairman of Birmingham-based Ligon Industries LLC and a member of the University of Alabama’s Board of Trustees; J. Hobson “Hobby” Presley Jr., a bond attorney and founder of ­Presley Burton & Collier LLC in Birmingham; David Corbin of Trinity Advisers LLC, the city’s financial adviser; and Doug Turner, a budget consultant hired by the City Council several years ago.

Smitherman said the Birmingham Business Alliance also would participate in the task force and that additional members would be appointed. She expects a preliminary report from the task force in a week, she told the City Council yesterday.

Presley, who had done some bond counsel work for Birmingham many years ago, said he looked forward to assisting Smitherman in reviewing the city’s financial practices.

“I appreciate her effort to try to build confidence and transparency about the city’s finances,” Presley said.

The financial report detailing Birmingham’s budget problems was not available by press time.

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