Monday, June 25, 2012
Taxpayers Don't Know The Promises They've Made
Just when I thought I understood something about the world of municipal finance, here comes a story from the New York Times about taxpayers being on the hook for promises made on their behalf, without their consent, by municipal bond issuers! Here's an excerpt:
"With many cities now preoccupied with other crushing costs — pension obligations, retiree health care, accumulated unpaid bills — a sudden call to honor a long-forgotten bond guarantee can be a bolt from the blue, precipitating a crisis. The obligations mostly lurk in the dark. State laws requiring voter pre-approval of bonds don’t generally apply to guarantees. Local governments typically don’t include them in their own financial statements or set aside reserves to honor them.
“These are debts that do not show up clearly, no matter how closely you look at the balance sheets,” said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics who has written extensively about government debt. They “come out of the woodwork in bad times.”
In a number of communities, especially in New Jersey, Michigan and Washington State, local officials have recently scrambled to work out fiscal emergencies caused by guarantees and similar promises.." (New York Times)
In order to give the reader a respite from unrelenting municipal malfeasance, I want to make a musical link to the theme of promises. Below is a YouTube video of Eric Clapton playing "Promises." (nice slide guitar playing)
(At the 0:16 mark, you'll see a shot of John McVie and Eric from a session for "John Mayall and The Blues Breakers Featuring Eric Clapton," a great album I have on British Decca vinyl. Fantastic)