“The role of governor, one small piece of it is to deal with the legislature. The much larger piece is to run the agencies.” 

                                                             Governor Eliot Spitzer
                                                             June 2007

“There is an unbelievable opportunity now to govern through the agencies, and that’s frankly what I’m really looking forward to.”

                                                            Governor Eliot Spitzer
                                                            July 2007

To circumvent the democratic process, Governor Spitzer has announced that he intends to govern through the 104 state authorities that are under his thumb.

Like his liberal predecessors, to avoid interference from the voters or the state legislature, Spitzer will use the vast bonding powers of these autonomous agencies to impose his will on New York taxpayers.

The following explains the financing powers of the New York State authorities and why Spitzer is focusing on these big-government murky-mazes:

In the early years of the republic, the belief that the public treasury should be raided to support specialized projects was rejected.  The revenue bond concept was implemented to permit public services to be paid by those who used the facility.  Most revenue bonds issued in the 1800s were for water supply systems, and were also backed by the general obligation of the issuing public entity.  It was not until 1885 when Wheeling, West Virginia, formalized the position that principal and interest on water works bonds should come exclusively from the tax-imposed on the user.

The most important development in the history of the revenue bond was the 1921 Act of the New York and New Jersey legislatures that created the Port Authority of New York and New Jersey.  The act, which was also approved by the U.S. Congress, was copied from the 300-year old Port of London Authority.  It was so titled because the Act of Parliament that defined its powers began with the phrase “Authority is hereby given…” The new agency sold $34 million in bonds in 1926.

The actions of the Port Authority were a milestone in the history of municipal finance:  the agency issued the largest amount of revenue bonds to date; they were for a new type of project – toll bridges; and the bonds were to finance multiple projects.  In the past, authorities had a mandate to create only one project, and after the bonds were paid off title of the project reverted to the municipality.  The authority would cease to exist and the upkeep of the edifice would be the responsibility of the municipality.  But the Port Authority was given a longer life because its indenture permitted the building of several projects.

During this period there arrived on the scene a man who was destined to have an incredible impact on municipal finance and was to be recognized as the greatest builder of public works since the Pharaohs.  His name:  Robert Moses.

Born in New Haven in 1888, Robert Moses was educated at Yale and Oxford.  After completing his Ph.D. in Public Administration, he joined the Bureau of Municipal Research, a think tank located in New York City.

Recognized as a visionary, he was without power until he befriended Gov. Alfred E. Smith.  With his appointment by Smith as president of the Long Island State Park Commission, Moses began building an empire of agencies and activities that was to overshadow elected officials for half a century.

His reputation as an innovator who could implement his dreams was cemented in the minds of the general public when he broke up the great estates and polo fields of Long Island to build a recreational center for the common man – Jones Beach.  But his greatest impact on municipal finance stemmed from his chairmanship of the Triborough Bridge Authority and his interpretation of the entity’s ability to incur bonded debt.

Biographer Robert Caro, in his masterful biography of Moses, The Power Broker, describes Moses’ early traditional approach to authorities and their bonded debt:  “Originally, he had conceived of his authorities in the traditional mold:  the legislation he had drafted establishing the Triborough, Henry Hudson, and Marine Parkway bodies, for example, explicitly authorized each to construct only a single, specific project and to issue bonds only for that project; the bonds were to be paid off as soon as possible, and not only was a time limit (40 years) set on their expiration but that time limit also limited the authority’s life – as soon as its bonds were paid off, it was to go out of existence and turn over its bridge to the city government.”

When he accepted the chairmanship, the impact of the Depression made the completion of the Triborough Bridge appear unlikely.  The current view that New York City was a series of islands that could not cope with its ever-growing automobile traffice looked as though it would prevail for the foreseeable future.  Moses, however, managed to put together the finances and created four separate bridges that linked three boroughs:  Queens, the Bronx and Manhattan.

The unexpected financial success of the bridges began to changes Moses’ thinking on the purpose of public authorities.  The total principal and interest payments and maintenance costs for the Henry Hudson Bridge, for example, was approximately $425,000 a year.  After these expenditures, net income in 1938 was $600,000.  With net surpluses increasing every year, the bonds would be paid off, not in 40 years, but in eight or nine years.  The financial situation was the same at all the other bridges – toll collections were substantially larger than annual expenditures.

Moses did not want to lose his power base by putting his authorities out of business, nor did he want to lose control of the surplus dollars.  He needed to change state law and Moses, reputed to be the best bill drafter in Albany, launched a plan that would forever change the face of municipal finance.

As Caro wrote:  “Authorities could issue bonds.  A bond was simply a legal agreement between its seller and buyer.  A legal agreement was, by definition, a contract.  And under the Constitution of the United States, a contract was sacred.  No state – and no creature of a state such as a city – could impair its obligations.  No one – not Governor, not Mayor, not State Legislature, not City Board of Estimate – could interfere with its provisions.  If Robert Moses could write the powers which had been vested in him into the bond contracts of his authorities, make those powers parts of the agreements under which investors purchased the bonds, those powers would be his for as long as the authorities should remain in existence and he should control them.  If he could keep the authorities in existence indefinitely and could keep his place at their head, he would hold those powers indefinitely – quite conceivably, until he died.”

Moses knew he could not eliminate many of the safeguards found in the Triborough Bridge Authority’s indenture; instead he made them worthless.  Here are his innocuous insertions into the authority’s enabling legislation:

1)         “The authority shall have power from time to time to refund any bonds by the issuance of new bonds, whether the bonds to be refunded have or have not matured, and may issue bonds partly to refund bonds then outstanding and partly for any other corporate purpose.”

That line permitted Moses to issue 40-year bonds that could be refunded every 39 years.  The effect would be that Moses could start building all over again with the proceeds.  He would no longer have to pay the bonds off in full; the authority would not go out of existence.

2)         The authority had power to build only two bridges and their approaches.  Moses added additional wording that permitted the construction of “new roads, streets, parkways or avenues connecting with the approaches.”  The simple word “connecting” permitted Moses to build whatever he wanted so long as it eventually hooked up with the bridge.

3)         Under the structure, the fiscal agent of the authority received and paid out the corporation’s funds.  To get around this, Moses buried another simple clause in his bill:  “The money shall be paid out on checks of the comptroller on requisition of the Chairman of the Authority.”  With this change, only Chairman Moses could spend money; the fiscal agent became his gofer.

4)         To ensure that no legislative body could take away his power, Moses worked in the ultimate protection.  Biographer Caro reports:  “He did it in Section 9, Paragraph 2 and 4, Clauses a through i.  Paragraph 2 authorized the authority to pass resolutions governing the sale of its bonds.  The various clauses of Paragraph 4 said, when taken together, that the resolutions could contain provisions dealing with toll rules, Authority rules and regulations and ‘any other matters, of like or different character, which in any way affect the security on the protection of the bonds.’  And Paragraph 4 also said that any such resolution “shall be a part of the contract with the holders of the bonds.”

Since the U.S. Constitution forbids state or local governments to “pass any…legislation impairing the obligation of contracts,” the tax-exempt bond covenants protected forever Moses’ power base.  No governor, mayor, legislator, not even public opinion could abrogate his power.  In addition, he could now finance his dreams without interference from elected officials.

To implement his grandiose plans to redesign New York, Governor Nelson Rockefeller adopted the Moses approach to governing.

During Rockefeller’s tenure (1959-1973), he created and controlled scores of self-perpetuating authorities that circumvented state constitutional debt limits and the ballot box.  When Rockefeller left office in December 1973, his numerous bureaucratic innovations had incurred $12 billion in debt.

New York State Public Authorities

Rockefeller’s successors continued to recklessly spend through the authorities and in 2006 the accumulated bonded debt was over $100 billion.  And over forty percent of that debt is considered “back door borrowing” – debt issued by authorities specifically to avoid voter approval.

The most notorious cases of “back-door borrowing” included the sale of Attica prison to the Urban Development Corporation (now Empire State Development Corp.); the financing of prisons through UDC after the voters rejected a prison bond issue; and the “selling” of state-owned highways to the New York Thruway Authority.

Don’t expect the exploitation of these financing gimmicks to cease or the accumulated debt of the authorities to decline during the Spitzer years.  The governor and the leftist social engineers he’s been appointing to run the authorities won’t let that happen.

This entry was posted on August 12, 2007 at 3:19 pm and is filed under NY State Finances-SCC. You can subscribe via RSS 2.0 feed to this post's comments. You can skip to the end and leave a response. Pinging is currently not allowed.