Editor’s Note: Thanks to Don Raskey for this excellent, well researched article. Don worked hard with the No2Arena people to get the full facts in front of Lincoln voters. His continued efforts to follow up are much appreciated.
By Donald Raskey
The mayor and the Joint Public Agency (JPA) have been touting the future $50 million interest savings to the city on the recent $100 million bond issue for the Haymarket Arena. This was accomplished by using Build American Bonds (BABs), which were created by the American Recovery and Reinvestment Act. BABs provide the city with a 35% federal subsidy for interest payments on these bonds.
There are a several points I would like to make concerning this “shell game” being played by the Ruling Class (i.e. Washington D.C. politicians, the mayor, the minions on his staff, the JPA, etc.):
First, it is laughable that the mayor and the JPA are making such a big deal out of this so-called “savings” the city will be experiencing from the lower than budgeted interest rates. When the No2Arena group criticized the fact that there would be $377 million in total interest expense over the life of the arena bonds (at the budgeted 5% interest rate), these same folks were downplaying the significance of this cost. Dan Marvin’s (the city’s arena coordinator) response to No2Arena in an article in the Lincoln Journal Star on April 29, 2010 was, “The only reason they’re doing it is to get people to vote no.” Marvin also stated, “Yes there is going to be interest and principal added together, (but) it’s a careful campaign of wordsmithing and scaring people.”
So, according to Marvin, when concerned citizens try to bring up facts in order to inform other citizens of these facts, it is called “scaring people”. Does this theme sound familiar with what is taking place on the national political scene? If you answered yes, you would be correct!
Second, like other federal subsidies, with BABs there is no free lunch. You, the taxpayer will still be picking up the tab on this so-called “savings” from the reduced interest cost to the city on the BABs issued for the arena. The BABs program is not revenue neutral – it adds to the federal deficit. In essence, the $50 million in interest cost saved by the city has been redistributed to the federal deficit, which you and fellow Americans across the country will now be paying for with federal income tax dollars. The CBO estimates that this program is now projected to add $30 billion to the federal deficit. Some estimates have it increasing the federal deficit in excess of $50 billion. And yet, the Ruling Class spouts that this is “saving” the taxpayer money. Oh really?
Third, issuing BABs make local project costs the responsibility of every US citizen by adding to the federal deficit. This is a threat to fiscal federalism – i.e. states and localities managing their own budgets.
Do you think the residents of Lincoln, NE should be responsible for the debt service of recreational facilities in Menlo Park, CA, or marina improvements in Mercer County, New Jersey? These are just a couple of examples of projects funded by BABs. If you don’t believe Lincoln residents should be responsible for 35% of the debt service on these projects (via federal income taxes), then do you think it is right to ask citizens from across the country – some who will never step foot in Lincoln, NE – to help foot the bill for the Haymarket Arena? Yet, by issuing BABs for local projects, localities are asking other citizens from across the nation to help pay the bill on parochial projects (even though some of these projects may not be very prudent).
Fourth, shame on the federal government for offering programs like BABs in the first place. Programs like BABs infringe on the sovereignty of states and local communities by making them subservient to the federal government. For example, the U.S. Treasury recently withheld their BABs interest subsidies to the state of Texas when the state fell behind on their federal taxes owed. Yes, Texas should stay current on their obligations to the federal government, but Washington now has a new weapon to use against states on fiscal matters.
And finally, BABs encourage fiscal irresponsibility on the backs of taxpayer nationwide. Generally, localities would offer bond issues for local projects through the normal municipal bond market. The interest rate localities incur on their bond offerings is based on the creditworthiness of the local government. If your community or state has been responsible in the past and is fiscally sound (i.e. not in debt over their heads), they will get a lower interest rate, than say, a locality that is in a budget crisis due to prior fiscal mismanagement. More risk equals a higher interest rate. Along comes BABs, which gives the fiscally imprudent localities the opportunity to go into even more debt. Due to the subsidized interest rates of BABs, these localities can now magically “afford” more debt on the back of the rest of the citizens of the country who will be paying for this subsidized interest reduction.
In summary, no one, including the mayor and the members of the JPA, should be celebrating such a hollow victory – you have saved the taxpayer nothing!