A series by Bill Keisling
The “The Harrisburg Authority Resource Recovery Facility Forensic Investigation Report” audit by necessity is a difficult document to read and understand. Bonds transactions by their very nature are complicated financial instruments. Nevertheless, because of the resulting crippling public debt, the report is required reading for two groups of people.
The first group of readers — the bonding industry, its customers and its regulators — no doubt finds the report amazing if predictable reading. One safeguard and accepted practice after another was ignored or discarded by everyone to bring the incinerator, the Authority, and the City of Harrisburg to their collective knees, the audit relates.
The second group of readers who by necessity must try to make sense of the complicated audit report, its information and its findings, is the public: the taxpayers who ultimately must foot the bill.
One can argue that the very nature of public bonding practices for the last quarter century has been designed to short circuit the involvement of citizens and tax payers in the running of their governments. One of the primary reasons elected officials turned to bond financing since the 1980s was to avoid the blunt unpleasantness of raising taxes.
When a tax bill comes in the mail, taxpayers can readily understand what is going on at city hall, and voice their displeasure. If high taxes are about to drive a city and its residents over a cliff, elected officials will quickly hear from a displeased public.
But when bonds that may take decades to mature underwrite these same services, the vast majority of the public simply does not know, and turns a blind eye.
A bond prospectus is infinitely more complicated to understand than a simple tax bill.
So the inherent complicated nature of bond financing, its ramifications and regulation, seem designed to further lock out the public from understanding, and participating in, an ongoing financial debacle, even if it takes decades to unfold, as in Harrisburg.
When a city is about to be driven over a cliff by irresponsible bond financing, it requires wizards of high finance, and industry insiders, to understand and hopefully explain the problem.
Hence we have the forensic audit report of the Harrisburg incinerator’s staggering $300 million debt.
The audit report, then, is required reading for all members of the general public who care to understand how their cities and states today are run. Today our local and state governments are increasingly run, not on tax revenues, but on the proceeds of complicated bond transactions.
As such, the understanding of the Harrisburg Authority’s forensic audit and the fine print of a bond prospectus should be required reading for every eighteen year old seeking a public high school diploma.
In the old days, a graduating high school senior was ill prepared for life if he or she did not know how to balance a simple check book.
Now that our governments increasingly are financed by the bonding industry, a young person’s future may well depend on how well he or she can read a bond prospectus, and understand its dismal ramifications.
This of course presents an interesting dilemma. Harrisburg city schools themselves are burdened by an additional $300 million of bond construction debt, separate from the $300 million owed by the city incinerator.
In 2011 alone, some $15 million in payments to service its bond debt crippled the Harrisburg School District. (Other local school districts are similarly in debt, if not quite to this extreme.)
The Harrisburg School District’s $15 million bond debt payment accounts for about 12 percent of the district’s $124 million 2011-12 budget. By the time the outstanding school bonds are retired in 2034, it is projected that the school district will have paid a staggering $588 million on its bond debt. Ifthe money can be found.
Meanwhile, due to a lack of funds, some students in the Harrisburg School District this year were not issued pencils or books
To understand the problem undermining their futures, today’s Harrisburg High School students will not only have to understand and cipher bond debt.
They will have to bring their own pencils to do it.
