The great public authority swindle: Part I

Politicians learned early on how to bypass the voters.

By Steven Miller
  • Friday, August 3, 2007

This is the first of a two-part series examining the undemocratic, corruptive and profligate nature of public authorities, in Nevada and around the nation.

A mid all the allegations that surround the Las Vegas Convention and Visitors Authority year in and year out, the issue of the LVCVA’s unique legal structure always seems to escape attention. 

Throughout American history, however, that structure has facilitated waste, public graft and corruption.

The LVCVA is an off-budget public authority — a state-chartered “business” outside the normal structure of traditional government, with a board of politicians and their political appointees.

Law exempts such boards from detailed accountability to the public, taxpayer approval of the massive public debt these boards take on, and much of the oversight under which government agencies normally operate.

The rationale for this end-run around the normal constraints of representative democracy is that it gives politicians and their allies more room to do “good things.” Repeatedly throughout American history, however, the result has been fiscal calamity and pervasive corruption.

Early 19th Century state legislatures, for example, went on sprees pumping public money into government-sponsored corporations. Starry-eyed over the bank, railroad and canal corporations they were chartering, state governments invested even more heavily than did the private interests lobbying them.

With few exceptions, observed the late Donald Axelrod, most of those corporations went bankrupt in the depression of 1837-1843, defaulting on their debts to the states. Soon, over half of state government debt around the country was in default.

“Equally traumatic,” reported Axelrod, “was evidence on all sides of corruption, chicanery, special privilege, and fiscal mismanagement.”

In response, outraged voters demanded “the first set of constitutional limits on state borrowing: debt limits, referendum requirements, and prohibitions of loans or credits to private individuals and corporations.”

However, as soon as state governments were under tighter voter control, the hucksters turned to America’s local politicians. Now they, too, hastened to flout their fiduciary responsibilities. “Stimulating economic development” became their catch-phrase as they shoveled taxpayers’ funds into more deals with private promoters.

By the 1860s, wrote Axelrod, local governments “had more outstanding debt than the states” and soon suffered the same fate: “Financial manipulation and the depression of 1873-1879 resulted in major bankruptcies and defaults. Nearly 25 percent of all local government debt was in default.”

Again, voters clamped down, placing local governments “in a constitutional vise of debt ceilings and prohibitions against lending money or giving credit to private corporations and individuals.”

These constraints still exist in state and local law across the country, including Nevada. Public authorities are the latest, and most successful, attempt at circumvention.

Beginning in New York State in the 1930s, Robert Moses used public authorities to build a personal power base of massive clout — circumventing not only state and local debt requirements, but also the people’s elected representatives. Public authority secrecy allowed Moses for decades to “hoax” the media and the public, noted Robert Caro, who won the Pulitzer prize for his well-researched biography of Moses, The Power Broker . For 40 years, nothing could stand in Moses’ way, wrote Caro.

Public authorities as a vehicle for the power-hungry got another huge boost in the late 1950s, when New York Governor Nelson Rockefeller discovered them with the help of an eminent Wall Street bond lawyer, John Mitchell. (Mitchell years later would be imprisoned as a Nixon-administration Watergate felon).

After voters for the third time rejected a $100 million housing bond issue Rockefeller wanted, he created the Housing Finance Authority to issue boatloads of non-guaranteed debt. When voters for the fourth time rejected a $500 million bond issue on higher education, Rockefeller created the off-budget State University Construction Authority. When voters rejected a housing bond issue for the fifth time, Rockefeller created the off-budget Urban Development Corporation.

In 1975, when New York State had a serious brush with bankruptcy, 81 percent of outstanding state debt was from off-budget public authorities. Today that number has grown “to a troubling 92 percent,” New York Comptroller Alan Hevesi recently reported. His office, he said, “has found serious problems at every single public authority we have examined.”

Public authorities are “the Enrons” of New York state government, New York Gov. Elliot Spitzer charged in a speech last year.

One such “Enron” is the massive Metropolitan Transportation Authority. Top managers were recently indicted for taking bribes and gifts from a Brooklyn plumbing firm they knew was overcharging the authority by millions of dollars. The MTA was also caught keeping two sets of books, concealing its dire finances from the public to aid political allies.

Apologists often argue that authorities are “businesslike” and politically independent, but that’s not true, says municipal bond expert Joe Mysak, a Bloomberg financial columnist.

It’s the politicians, he notes, who appoint “board members, executive directors, and more, and those people see who gets the bond business and construction contracts and all the rest.”

So, how does the system work in Nevada?

That’s our subject next week.

Steven Miller is policy director at the Nevada Policy Research Institute.

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