DC UnitedImportant public works projects such as a football (soccer) stadium in Prince George’s county, Maryland, can be funded by the state without voter approval through the facility of quasi-private-public entities called public authorities or public benefit corporations that harken back to the Massachusetts Bay Company, Hudson’s Bay Company, and the Dutch East India Company. Indeed, legislation has been introduced in the Maryland assembly to approve the Maryland Stadium Authority to issue what are called lease revenue bonds to fund the construction of a new home for the Major League Soccer team, D.C. United

State Sen. C. Anthony Muse (D-Dist 26) of Fort Washington and Del. Melony G. Griffith (D-Dist. 25) of Upper Marlboro have introduced legislation that would allow the team to use state and county bonds to build the stadium somewhere in Largo to replace its current home at the 49-year-old RFK Stadium in Washington, D.C.

RFK Stadium is an ancient public works project long-since abandoned by the Washington Redskins for another public works project also relocated out of the District of Columbia. It is understandable why DCU would want to move to greener pastures, as well. But it would amount to another economic blow to the city which lags in prosperity with neighboring Maryland and Virginia counties. Unfortunately, DC doesn’t have the power of the public authority money-raising facility.

However, PG County and other Maryland residents are not so impressed by the pitch being made for the proposed new pitch:

"[The deal] is designed in such a way that it really doesn’t cost the people of this county any money," Johnson said. "It does bring jobs and opportunity to this county."

Residents questioned the assurances, citing similar talk when FedEx Field in Largo was brought to the county for the Washington Redskins.

"Everyone was told that was going to bring jobs, going to bring money," said Judy Robinson, a Hyattsville resident who attended the conference wearing a "Books, Not Stadiums" nametag. "I don’t believe Largo is going to be the winner."

Johnson’s staff members were unable to say how much FedEx Field has generated in local taxes since games began there in 1997.

County officials have been courting D.C. United for more than a year, even as discussions continued between the team and Washington, D.C., officials. The deals began to play in Prince George’s favor earlier this month when Poplar Point, a major development in southeast Washington that included plans for a new soccer stadium, fell through due to the economy.

Each leader emphasized that they expect the stadium to pay for itself.

The leaders are, of course, alluding to the back-door financing gimmicks that enable states to borrow more than their Constitutions allow and without approval by their voters in referenda. Consider how the MSA (whose activities have gone well-beyond building stadiums) started out1:

The Maryland Stadium Authority was created in 1986 for the purpose of proposing a site for one or more new professional sports facilities in Maryland and financing and directing the acquisition and construction of such facilities. The authority is authorized to issue revenue bonds, subject to prior approval of the Board of Public Works. The 1986 General Assembly placed an aggregate limit of $235 million on the issuance of such bonds, of which $200 million may be issued as tax-exempt securities prior to January 1, 1991, under a transitional provision of the Tax Reform Act of 1986.

In May 1989. the authority issued $60.8 million in taxable lease revenue notes for the acquisition and preparation of the property site of new sports facilities. The authority also entered into a lease arrangement with the state whereby the state will lease the facilities from the authority. The authority’s note and subsequent bond issues are secured by the lease with the state, and the state’s rental payments to the authority approximate the debt service on I he authority’s notes and bonds. The state will sublease the facilities back to the authority and the authority’s rental payments to the state approximate the authority’s net income. At the conclusion of the lease term, title to the facilities will transfer to the state.

I think they call this a wash in the banking world. The state transfers its implicit indebtedness for the project in question to the public authority and then back to itself again after the leases expire. Since the public authority is not beholden to the taxpayers, public approval is obviated in the interim. The upshot, though, is that taxpayers ultimately wind up paying for it, after all.

States have been running away with this mechanism to the tune of many billions of indebtedness that their Constitutions would otherwise not allow. The state of New York is the worst example of this subterfuge. The process is so sublime they come right out and tell you what they’re up to2:

What is Back-door Borrowing?

This is debt issued by public authorities (public benefit corporations) without voter approval. The State has authorized numerous public authorities to issue debt which the State is contractually obligated to pay for the interest and principal. This debt is not approved by the voters but tax dollars are used to repay the debt. This debt was created in the 1960’s after voters rejected many debt issuances. This type of borrowing makes up approximately 93 percent of outstanding State-Funded debt and increased $12.8 billion or 40 percent between 2000 and 2006.

Public Authorities issue debt in two ways:

Under a lease-purchase arrangement, the public authority issues its bonds to purchase, construct or rehabilitate a State facility. Title to the facility transfers to the public authority as security for the debt and the State makes annual lease payments until the authority’s bonds are paid off, when title reverts to the State.

Examples of this type of debt include the Thruway Authority’s rehabilitation and preservation bonds for highway purposes and the Dormitory Authority’s bonds for State University and City University education facilities.

Under a contractual obligation arrangement, the State agrees to make payments to a public authority for purposes of paying off the authority’s debt issued for a specific State purpose.

Examples of this type of debt include the Thruway Authority’s Consolidated Highway Improvement Program, the New York Local Government Assistance Corporation, and certain housing programs of the New York State Housing Finance Agency. Under a contractual-obligation arrangement, title to the facility does not transfer from the State to the public authority.

This wouldn’t be so bad as it seems if funds were actually used towards something of value as opposed to subsidies for professional sports organizations. The needs of basic infrastructure projects, schools, hospitals, health-care systems, welfare programs should be met before venturing into partnerships with football clubs owned by very rich people.

Ironically, one of the main complaints noted by the D.C. United club about RFK stadium was that it lacked the amenities to meet the needs of the very rich,

United and MLS officials have long insisted that the team needs a new stadium to be financially viable. RFK Stadium, its current home, is in its 48th year and lacks revenue-producing amenities like club seats and luxury suites.

Alas, the public authority facility seems most often used to finance prisons as public/private works projects. Not the sorts of places convicted rich felons would be sent to, mind.

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1. Handbook of Debt Management By Gerald Miller

2. The Government and Politics of New York State By Joseph Francis Zimmerman

See also Fitch ratings of MSA bonds here.

alank

alank