What do projects as diverse as the Lancaster Convention Center, the Harrisburg Incinerator, and New Jersey’s Giants Stadium have in common? These projects have encumbered hundreds of millions in bond debt and have left the public holding the bag.
While Lancaster now tries to weigh the anchor tightened around its fiscal neck by the growing Convention Center debt, it would be good for citizens of the Red Rose City to consider the serious plight now face by its neighbors in Harrisburg.
Beginning in the early 1980s, former mayor of Harrisburg floated a series of bond issues that today threaten the very independence of Pennsylvania’s capital city, and could very likely soon cause its citizens to lose its rights to self-governance at the hands of the bond industry and its hand maiden politicians.
As some of you know, Harrisburg ran up nearly $300 million in bond debt attempting to fix a broken trash incinerator. While these bonds were nominally floated by the incinerator’s public owner, the Harrisburg Authority, they were gauranteed by full faith and backing of the city of Harrisburg and Dauphin County. Ultimately every taxpayer in the county is on the hook.
Not discussed much at all is the genesis of these bonding deals. Believe it or not, our country was not built the last two hundred years by bond issues. The bond industry instead began to flourish only in the 1980s, when politicians discovered they could float large public bonds using their own selected bond underwriters and bond solicitors, and receive lucrative streams of political contributions from same.
An added benefit to the politicians was that they’d seemingly tapped a vast capital market without the necessity of raising taxes to pay for projects or services. These costs would then be kicked 30 years down the road, inflated by interest and arbitrage fees. Decades down the road, however, the weight of these obligations is enormous and crippling, while the politicians who floated the bonds often are long retired.
In Harrisburg, whose bond service obligations now far outweigh its operating budget, the state is threatening to install a board that would remove all governing authority from the mayor and city council to ensure that the bond stake holders are paid. Priceless public assets — public parks and water supplies — doubtless will be sold to feed the monkey.
In an article published last year in The New York Times, “As Stadiums Vanish, Their Debt Lives On,” writer Ken Belson relates, “It’s the gift that keeps on taking. The old Giants Stadium, demolished to make way for New Meadowlands Stadium, still carries about $110 million in debt, or nearly $13 for every New Jersey resident, even though it is now a parking lot. The financial hole was dug over decades by politicians who passed along the cost of building and fixing the stadium, and it is getting deeper.”
In other words, long after these projects have failed and have been demolished, the debt lives on, threatening the public and its institutions.
Even while these bonded sports stadiums fail, creating crippling public debt, sports players continue to receive ridiculous salaries in the tens of millions, subsidized by these bond deals gone bad. Suggestions that sports players be taxed to pay off the stadia bond debts have fallen on deaf ears.
I happened to be at a social function in Harrisburg this weekend, where people were openly critical of Harrisburg’s incinerator bond fiasco. When I suggested that over-paid athletes be taxes to pay off stadia sports debt, one football fan erupted and yelled, “Athletes or team owners no way should ever have to pay for this!” This same hot head then went on to complain about America’s “socialists.” Yet, for some reason, in his mind, athletes and team owners, and bond stakeholders, receiving vast public largesse, aren’t “socialist,” and should be left off the hook, he passionately yelled.
At the end of the day, this complicated subject is about easy front-end money that balloons into a nightmare decades down the road. Yes, it’s a complicated subject.
Yet Shakespeare, more than five hundred years ago, summed things up succinctly: “Neither a borrower nor a lender be.”
