Monday, January 01, 2007

Another GREAT article from the Indiana Policy Review Group

by Craig Ladwig

As any good citizen, you want to start the New Year right by determining how much you owe — not individually but collectively, in bonds that your Indiana community has issued to raise the cash it cannot bleed from the rest of us turnips.

You may even have seen the term “municipal bond” in a city-hall press release announcing this civic project or that. It will be near the phrase “this will not raise your taxes” or similar disclaimer.

That the bonds are backed by future tax revenue is not always made clear. Nor is the fact that the depth of our taxable pockets, the fleece on our sheep, is why investors are willing to trust a bunch of local officials and politicians in the first place.

Technically, the bonds are debt obligations or IOUs issued by the state, county, city or any other political subdivision to individuals who in turn lend money to our local government. Such loans are used for roads, sewers, hospitals, schools and the like. These days they also are issued for music halls, downtown hotels, sports stadiums, parking garages, swimming pools, shopping malls or anything else a politician can put his name on.

Everybody agrees that it is possible for a county to issue too many bonds. It seems a good idea, then, to ensure that at least your own community is not one of them. And in an open society such as ours that should not be difficult.

In my particular county, though, one that had opted out of an adjustment board, it was necessary to seek out a specialist in bonding matters. The specialist, a partner in a prestigious Indianapolis accounting firm, was confident he could get us a list of all the bond-issuing entities in our county.

Moreover, he thought he would be able to tell us the total amount outstanding for each bond for each entity. He could even identify that point in time when our county taxpayers would be most exposed to bonding obligations. He thought he could do all of this in a few weeks at a cost of only $35,000, a reasonable sum other accountants tell us.

But whoa, let’s stop right there: Why do you have to pay an expert to tell you how much you have borrowed from your children’s future?

Will they even be able to afford the future?

We are told you can get the same information more or less free from various state offices. It would take you considerably longer, of course, than the 190 hours our specialist expects to clock. Also, the word of a solitary citizen without credentials or authority claiming to know the exact date of bonding Armageddon would not be worth much in a public debate.

In short, First Amendment or not, without a sizable pile of cash you are unable to speak out on the issue of government bonding.

That is wrong on several levels:

First, democracy only works when it is transparent; otherwise, a monarchy would be more efficient.

And if nobody knows how much money is being borrowed or when it all will come due, we are tempting politicians beyond what human nature has shown they can bear.

It follows that allowing local officialdom to squirrel away critical information in the arcana of bonding reports is bad policy.

Still, you should fear the likely political solution: The issuance of another bond, one to pay to determine the status of the previous bonds.

T. Craig Ladwig is editor of the Indiana Policy Review Foundation. Contact him at cladwig@inpolicy.org.

This is a GREAT article, and yes Mr. Ladwig lives in Allen County...

Mike Sylvester

1 comment:

Mike Kole said...

Carmel has floated over a quarter-billion in bonds, just in the past 2-3 years. Mayor Brainard invariably uses the diclaimer that Carmel's tax RATE is the lowest of any Indiana city. Brainard never mentions that the City's bond debt was less than $40 million just 5 years ago, and he certainly never mentions the bonds as future taxes. Mainly, he believes that Carmel will attract additional development and population to COVER the debt down the line.

That looks and smells like a Ponzi Scheme to me. It's Enron Accounting at its worst.

And yes, Brainard is a tax-and-spend Republican.