Finance chief steered JeffCo disaster
Two weeks ago, Banks, Finley, White & Co. delivered the fiscal 2007 audit to the City of Birmingham. The city received a clean bill of health.
"We did enough tests and procedures that we feel that if fraud had occurred, we would have caught it," Jeff White told the Administration Budget and Finance Committee.
Realize, though, that this audit was for the fiscal year ending June 31, 2007, the last full fiscal year of the Bernard Kincaid administration. Short of inspiring confidence, it is good indicator of what Birmingham has yet to loose - its good name on the market and credit with the banks.
Next, you have to look to one hiring change made by the new mayor, Larry Langford.
Kincaid's finance director was Michael Johnson, a mild-mannered man with a spotless reputation. Johnson still works at City Hall, but no longer as the finance director. Soon after taking office, Langford demoted Johnson to deputy finance director. Don't feel bad for Johnson, though. He looks a lot happier since the move.
Langford replaced Johnson with Steve Sayler.
Sayler comes to Birmingham City Hall from Jefferson County, where he previously worked as the county's finance director. Mayor Langford replaced someone who, by all appearances, was competent and familiar with the breadth and depth of the city's finances with someone who presided over what promises to be the largest municipal bankruptcy in the history of the United States.
It will take a long time to sort out what and who deserves the blame for the on-going financial catastrophe at Jefferson County. In the meantime, you could look at The Birmingham News front page two Sundays ago and draw one connection. The banner story was about Jefferson County's debt woes worsening. The next story down detailed the $900 million of projects Mayor Langford had proposed in his first 100 days in office.
Langford has said that some of the bizarre county financing, such as its overuse of interest rate swaps, began before he got there. However, Sayler cannot say the same. He was there for the duration, and he's spent the last couple of years defending the interest rate swaps, arguing that in the long run the county would come out ahead. But as John Maynard Keynes said, in the long run, we're all dead. And it appears Jefferson County might not live through even the short run.
The debt structure Sayler helped create combines an absurd number of auction-rate warrants, vulnerable variable interest rates and interest rate swaps with built-in self-destruct mechanisms. From a distance, Sayler's creation looks like a cross between a Rube Goldberg machine and a Doomsday Device - a disruption in the market has set into motion a chain reaction that could leave Jefferson County in financial ruin. In light of what's happening across Linn Park, putting Sayler in charge of the Birmingham Finance Department was like putting Osama bin Laden in charge of Homeland Security.
Langford wasn't ignorant of Sayler's role at Jefferson County. He was intimately familiar with it, and he told the Securities and Exchange Commission as much last summer. Throughout Langford's sworn testimony, he regularly put the onus of fiscal responsibility on former county financial adviser Norm Davis and then-Finance Director Sayler. In the past, Langford had talked about bond swaps and debt refinancing as through he'd invented the things, expounding at length to reporters about how these financial instruments would save sewer rate payers millions. But after those deals turned sour, Langford claimed ignorance. He wouldn't know a swap advisor from a rubber band, he told the SEC investigators. Instead, he relied on Davis and Sayler.
But that was last June, almost six months before he gave Sayler his new job at City Hall. With the SEC, IRS and the Justice Department all combing through the county's bond business, Langford had to know the picture there wasn't all puppies and rainbows. Just about every financial wire service or trade publication was saying the county had been taken for a ride. But that didn't stop him from taking Sayler with him to City Hall. He dragged his old finance chief out from the bus he'd thrown him under and made him the city's lead bean counter.
Langford has a history of rewarding failure. After being elected to the commission, Langford sought the advice of his friend, Montgomery investment banker Bill Blount, to sort through the various bond deals coming across his desk. Blount seems to have favored the deals that included his bank or his partners. That's no surprise. But it should surprise anyone that Langford would still trust him. According to his SEC deposition, Langford trusted Blount because Blount had helped him finance VisionLand. That endeavor used bonds to pay off bonds, and capital budgets to pay off operating costs. VisionLand's implosion and Chapter 9 bankruptcy might be the closest model we have locally for what happens next at Jefferson County.
Langford's sense of loyalty and trust is so freakish that we can take some comfort that his other old friend, Richard Scrushy, is still in jail. If the Scroosh were loose today, there's no telling what our political landscape might look like.
But if Langford's SEC testimony is any measure, he learned something from his friend before the feds took him away. Act smarter than you are. Always pretend to know more than you do, at least until the feds start asking questions. When that happens, play dumb and blame your friends who put you in this mess. Ignorance is bliss, especially if you're getting paid to look the other way. Until the FBI kicks in the door, keep a fall guy behind the wheel.
If you want to know why Sayler is in charge of the city's finances, you might ask Bill Owens, the former HealthSouth chief financial officer. You can find him at the federal detention camp at Maxwell Airforce Base, where he'll be for the next three years.
War on Dumb is a column about political culture. Write to firstname.lastname@example.org