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Birmingham City Council, Europe's largest local authority, will cease all spending except for essential services mandated by law, like social care and waste collection, after declaring bankruptcy following a budget shortfall of £87 million this year. The situation may also force the sale of several public buildings, including Birmingham's Council House (pictured).Christopher Furlong/Getty Images

A visitor to Birmingham might find it hard to believe that Britain’s second largest city is in the midst of a financial crisis that has forced the local council to file for a form of bankruptcy.

The city’s streets are bustling and construction is booming. There are nearly £4-billion worth of projects in the downtown area including one called Paradise, which consists of offices, hotels, restaurants, shops and a 49-storey condominium designed in the shape of an octagon. A new train station is being built for a high-speed rail service to London and the city’s Alexander Stadium got a £72-million facelift for last year’s Commonwealth Games.

And yet, earlier this month Birmingham’s council stunned residents by announcing that it could no longer cover its expenses and had to file a notice of insolvency with the government at Westminster, which oversees municipalities.

Last week, Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, appointed a set of commissioners who will take over the city’s finances and consider a range of drastic measures. They are expected to include a hike in property taxes of up to 10 per cent, cuts to local services, layoffs and the sale of city-owned assets such as the Birmingham Museum and Art Gallery, the Library of Birmingham and even Council House, the seat of the city government.

“These are worrying times and I am sorry for that,” lead councillor John Cotton said during a special council meeting on Monday. “There is no quick fix. The road ahead will be extremely challenging.”

The scale of the financial challenge is staggering.

The council faces a £760-million bill to resolve a pay equity dispute with thousands of female workers who were paid around 25 per cent less than their male counterparts for years. City officials have also botched the instalment of an Oracle IT system to manage procurement and human resources. Mr. Cotton said fixing the system will cost up to £100-million, roughly five times the initial price tag.

On top of all that, the city’s financial officer said this year’s budget has an £87-million shortfall, excluding pay equity claims. The deficit is forecast to keep growing and reach £180-million by 2028.

Eddie O’Hara, a resident and long-time social worker, is worried about where the cuts will fall, and said Birmingham has been a city of contrasts for years. The disconnect between the glittering real estate projects and the city’s dire financial state reflects deep inequality that’s about to get worse as spending restraints take hold.

“We’ve got between about 40 to 54 per cent of our children living in poverty and yet we are a phenomenally rich city,” Mr. O’Hara said as he sat on a bench outside Council House before Monday’s meeting. He gestured toward the Paradise project across the street and added: “That development that you see there, most of that will go to people who are already part of the rich affluent.”

There’s been plenty of finger-pointing over how Birmingham got into this predicament.

Councillors had been warned nearly 10 years ago about the city’s poor management practices and looming financial pressure. “The council faces very significant budget difficulties in the next few years and does not yet have credible plans to meet these,” senior civil servant Robert Kerslake said in a 2014 review of the city’s governance.

Some critics blame what they say is a bloated council of 101 members who can’t make decisions. Calgary has roughly the same population as Birmingham, around 1.1 million, but only 14 city councillors plus the mayor.

Others criticize Westminster, and say years of cuts to local funding has crippled Birmingham and other cities.

Like most cities in Britain, Birmingham relies on grants from the central government for the bulk of its £3-billion annual budget. Over the past decade, that funding has fallen by 31 per cent in real terms, according to a study by the Institute for Government, a London-based think tank.

“We’ve got a stranglehold of London,” said Carl Chinn, a local social historian. He said there was a time back in the 1800s when Birmingham ran its own affairs and had the ambition to drive the Industrial Revolution.

“We had our own water company. We had our own gas company. We had our own public transport company. We had our own police force. What happened in the 20th century was that Westminster greedily grabbed power from dynamic local authorities like Manchester, Birmingham and Leeds.”

Dr. Chinn said Birmingham’s residents have been caught for years between a Conservative government in London bent on cutting costs and a Labour-controlled council that’s plagued by incompetence.

There is little indication that the crisis will end soon. The pay equity claims could take years to settle and the unions representing city staff have no intention of backing down. If anything, union officials have uncovered more discrepancies in Birmingham and other cities.

“Something fundamentally is rotten if we allow in any organization a situation where women workers have been discriminated against to the extent that they are here,” said Stuart Richards, a Birmingham organizer for the GMB Union. The GMB, which represents roughly half of the city’s 10,000 staff, is pursuing claims on behalf of 3,000 current and former female employees.

Lost in much of the debate over finances are people such as Elizabeth Jordan. She works for RE:Future Collective, a non-profit organization that offers art programs for disadvantaged people.

The collective relies on the city for around half of its funding, which is now at risk as commissioners look for ways to save money. “We’re here to make our voices heard and to express how important it is for the city to not lose its culture,” Ms. Jordan said as she joined a small protest outside Council House on Monday.

As councillors filed into the meeting they passed signs proclaiming the city’s slogan – “Be Bold, Be Birmingham” – which was adopted last year just before the Commonwealth Games. With the city now effectively bankrupt, some argue a better slogan might have been, “Be Careful.”

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