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This Speakout has not been edited

By Francis M. Miller, Parker

During the past several months, I have increasingly noticed an inordinate amount of news related to the financing of public infrastructure, using bonds and other leveraged investments. While much of this is routine, I believe we are witnessing an irreversible transformation in how we finance government affairs.

Thirty years ago most capital projects in the public sector were financed on a pay-as-you go basis. That has changed; let me give you just a few examples:

1. Two ex-Denver mayors and our recent ex-governor are involved in using their political contacts to link financiers in the private sector with public sector initiatives.

2. Denver sold bonds, using its school buildings as collateral, raised nearly $400 million dollars, which it invested in the market, and is now right back where it started.

3. Jefferson County and other public sector organizations with pension under-funding deficits have been approached with similiar schemes.

4. Employee pension plans, who, 30 years ago, would have their portfolios in bonds and maybe a few stocks, are now fully placed in the equity, real estate, and hedge fund markets and are allowing their monies to enter private equity placements with high levels of risk.

5. When I was on the Douglas County Planning Commission I discovered that the Open Space group had leveraged its revenues by selling bonds and then going on a spending spree, buying properties. They now have little or no money and must spend most future tax revenues to service the debt.

6. The infrastructure, such as water, sewer, roads, etc, for most housing projects are financed selling bonds. Often the developers include golf course and equestrian and other recreation facilities that help sell the property. The mill levies can be steep and there is virtually no oversight on these bonding projects which encumber the future homeowners within a development.

Everywhere you turn there are government agencies beginning to use leveraged financing, not only for capital projects, but also to work themselves out of pension problems, road mainteannce and a host of other operational issues. If you were to extend your search to NGOs, such as hospitals, universities, etc, I would dare say there are literally billions of dollars of projects being financed on the come.

I am not so conservative that I do not see a need for the use of bonding and other leveraged financing where it fits. I spent 25 years in public accounting with firms such as Deloitte Touche and KPMG doing financial feasiblity studies for the issuance of bonds. That work ranged from hospitals, public housing authorities, indian reservations, schools, airports and mass transit. But, I also saw really stupid, irresponsible things occur, such as Arapahoe County assisting in the bankrolling of a race track, that smelled like dead fish, all in the pursuit of economic development.

The problem is many-fold, as I see it. First, use of leveraged financing nearly doubles the cost of a project. Second, if the period of repayment is longer than the useful life of the asset, you end up, like with a car lease, having to roll debt forward into the replacement project, creating a compounding situation from which you can never escape. It astounds me that government agencies are getting themselves in a position where they have to use leveraged financing as a bailout for poor management of pensions and road maintenance. This is like using a reverse mortgage on your house to buy a time-share in Hawaii and leads down a path of no-return.

I am further troubled that our government leaders are entering these fields. I do not wish to deny a man a living, but it is hard no to feel a sense of betrayal when Bill Owens ends up weilding the oil can and grease gun to lubricate the railroad locomotive bearing down on the taxpayer strapped to the railroad tracks. How many other legislators and government officials are playing a role in positioning themselves for lucrative contracts in the private sector and how many of our projects are being compromised all the while.

I realize that it is a challenge for a newspaper to get to the root of such complexity. It is tantamount to investigating white collar or organized crime because so much of the activity is done in the shadows.

I think your reporters have been doing a great job reporting the most visible of the activity such as the school pensions, but its hard to tally up the total impact of many stories or connect the dots over a long period of time. It takes a Woodward/Bernstein kind of reporting to go after this.

I recognize that the DNA has to continually justify its new format and approach to the news in this internet world. I assure you that probing this whole matter of leveraged financing in the public sector will be an area for which the public will thank you as the years pass and they come to realize this is potentially putting them on a road to serfdom.

READER COMMENTS

While you bitch, where are your suggested solutions to remedy the problem?

That's Booshway Hythloday to many of you.

"Citizens need to remove the scoundrels and replace them with responsible, rational individuals. Impeach Bush."

The topic is state and local government. While I appreciate your frustration with the Bush administration, the opportunity to remove him was in 2004. The major opposition party chose to nominate a billionaire lawyer with a well earned extreme Left reputation. They had viable candidates they could have chosen who would have removed Bush from office; the failure was theirs. Impeaching Bush at this point would hardly be productive; we need to focus on the things we actually can do in the near term - like restricting the nearly unimpeded growth of state and local government.

"When the taxpayer loses control of government that government becomes increasingly irresponsible and irrational." Citizens need to remove the scoundrels and replace them with responsible, rational individuals. Impeach Bush.

In addition to the questionable financing options you mention, there is also a huge effort to soften up the taxpaying public for massive tax increases at the state and local level. The Democrats have been running the state for six months - and we are told, by the new Governor, we must have a revenue increase in order to provide driver's licenses to citizens! This is, quite literally, the only interaction or service the average citizen has with, and receives, from state government. What message does it send to citizens to be told the massive taxes they already pay is not enough to provide this minor, basic service to the taxpayer?

I think we are already experiencing the answer to the above question as the exodus of productive citizens from California to places like Colorado (and virtually every other western locale that is NOT California) continues. When the taxpayers lose control of their government, and that government becomes increasingly irrresponsible and irrational, citizens take the only remaining option and remove themselves from that governmental jurisdiction. This is nothing new as it helped fuel the growth of suburban cities in response to irrational central city governments. I truly believe we are about to experience an effort to increase taxes on Colorado citizens to the hideous levels of California (9.3% income, 8-9% sales, etc). TABOR was put on hold and the whining from the government officials and their media backers is that it still is not enough money. Many of us have already experienced where this is heading: there is NEVER enough money! California workers with incomes above $30,000 per YEAR are already in a 50% marginal tax bracket on the income side ALONE - before they have paid sales, property and other taxes. This assumes they count Social Security/Medicare payments as taxes, which virtually everyone now does since the failure of social security reform. Will Colorado politicians follow the California model and force their working people to all move to neighboring states?

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