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Michael Miller


By Michael Miller
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Trojan Horses and Black Swans

There was a Trojan Horse in the big Washington tax cut compromise last week. As part of the deal, the Build America Bonds program will be allowed to expire in a few days.

The Build America Bonds were created as part of the 2009 federal stimulus. The federal government pays 35 percent of the interest costs on these taxable bonds in order to drive down borrowing costs for local governments and funnel money into infrastructure projects that create or maintain jobs. The program has been wildly popular with investors and underwriters. $185 billion worth of bonds have been sold, restarting the slumping market for municipal credit, which puts dollars into the pockets of every state and local government taxpayer. The popularity has only been growing. In November, states and municipalities issued $15.8 billion in Build America Bonds, the highest one-month total since the program began.

The bonds are helping to build and rebuild bridges, highways, dormitories and more.

As soon as Congress passed the deal, when it became clear that BABs would not be saved, top-rated municipal bond yields (the interest we pay on loans to keep our governments going) jumped up to the highest rate since the financial crisis hit full-force in 2008. California’s State Treasurer estimates that the loss of BAB savings will be a $29.6 billion hit on American taxpayers in 2011 alone.

From the start of negotiations, Congressional Republicans bragged that extension of BAB was off the table. For some, the issue is philosophical (such as the federal expansion into the state and local bond market). For others, there are just issues. Senator Grassley of Iowa, reacting to reports that about one-third of BAB revenues were for projects in New York and California, called for an investigation. “If that’s the case, the program might be better named the Build California and New York Bonds program,” he declared. Yes, our Metropolitan Transportation Authority has issued a total of $3.039 billion in Build America Bonds. So? The Texas Transportation Commission issued $3.523 billion worth.

By the way, federal agricultural subsidies to New York in 2008 and 2009: $256 million. To Iowa: $2.50 billion. New York, bad. Fire, good.

The Build America Bonds program has helped communities in every state to have continued access to the capital markets at decent terms. And some people don’t want that.

There are multiple, credible reports that legislation is being prepared to allow states to declare a form of bankruptcy. Individual municipalities can declare bankruptcy now, and a small handful have over the years, but not state governments. Some think it would be a good way to void labor agreements and break employee unions. We are way beyond Supply Side or New Federalism or anything else from the Reagan era. We are working off a whole new agenda, involving the shrinking of all government, all taxes and all sense of community obligation and mutual assistance. Permanent austerity at all levels.

Last week, on the “60 Minutes” program, Governor Christie of New Jersey may have vaulted himself into the nomination for President by making it clear that unless state employees gave in to his demands, their pensions are on the line. New Jersey would never break an obligation to the Wall Street firms who hold and underwrite bonds, who melted the American economy. Firefighters, custodians and social workers will pay for the actions of politicians who slashed upper-bracket tax rates instead of making pension payments.

Thirty years of largely-stagnant wages and regressive taxation policies are making it easier to turn average Americans against each other.

Over 100 American municipalities are now facing technical insolvency in 2011. This is a revenue crisis. What we’re seeing across the country is that falling property tax revenues lags behind falling housing prices by about three years, mostly due to how tax assessments are timed. Around the final quarter of 2011, look out. Especially if the Governor-Elect gets his two percent tax caps without making provision for replacement revenue. The viability of entire school districts may come into play.

There may still be time to avert disaster. I choose to believe that. We can.


Michael Miller is a freelance writer, designer and strategic consultant who has worked in state and local government. Email: