Pamela Powers Hannley, a progressive voice for Arizona
In a month, Pima County voters will be asked to vote on a $816 million, seven-part bond issue that includes construction of multiple buildings and roads to benefit existing corporations or attract new businesses to Southern Arizona. Sprinkled amongst the corporate-giveaways are improvements or construction of libraries, community centers, parks, neighborhoods, and other perks that benefit the rest of us.
With 99 separate projects over a 27-year period, this bond issue is far-reaching in its scope and cost. The big question is: Is taking on this amount of debt sustainable and affordable?
If you have heard a public banking presentation by Arizonans for a New Economy, you know that co-directors Jim Hannley and myself strongly advise against borrowing from Wall Street. Wall Street banks have one goal: To make money for their shareholders; they couldn’t care less about local economic development or investing for the public good. Arizonans for a New Economy and the Public Banking Insitute support bringing taxpayer dollars back home from Wall Street and using that money on Main Street to self-finance infrastructure projects, education, low-cost loans for local small business, and much more through establishment of a public bank whose charter specifies “banking in the public interest” (not in the interest of Wall Street shareholders).
Risky Wall Street deals have entrapped many local governments in a web of debt and have caused disastrous consequences for cities like Detroit and Chicago. There is evidence that Wall Street actually targets economically depressed areas like ours…
Wall Street Preys on the Poor
Remember when the Detroit Water Department turned off the water for 100s of customers who had missed a few payments after their bills skyrocketed? The bills went up because the water department owed $547 million in penalties to terminate a risky Wall Street deal; 40% of everyone’s water bill went toward paying off the debt to Wall Street.
Here is some background on Wall Street’s predatory lending practices from Dirty Deals: How Wall Street’s Predatory Deals Hurt Taxpayers and What We Can Do About It…
The fee-based business model allows Wall Street banks to make a profit regardless of the financial health of their customers. Banks make their money based on the quantity of loans they make, not the quality of those loans. In fact, clients in poor financial health that constantly need to take out more loans, refinance their loans, or enter into more complex financing structures that entail multiple transactions are more profitable to Wall Street than financially stable customers with plain vanilla loans who can pay their bills on time.7 This is true for banking customers of all stripes – individual consumers, corporate clients, and municipal borrowers. This encourages banks to pursue predatory lending practices, like steering customers towards financial products that are more expensive, more complex, and contain hidden risks. Unfortunately, working families, small business owners, and state and local governments in particular are easy prey.
In the financialized economy, Wall Street firms actually benefit from economic inequality because poor people, struggling small businesses, and tax-starved governments are all great sources of fee revenue. As a result, there has been a systematic effort by Wall Street and Corporate America to suppress both wages and taxes over the past 35 years. Wall Street’s sole focus on shareholder returns rewards companies that avoid taxes and pay their workers low wages. Banks and other financial firms like hedge funds and private equity firms use loopholes and other financial shenanigans to avoid paying their fair share in taxes, and they lobby to prevent progressive revenue solutions, denying public officials revenue they desperately need…
The current Wall Street business model is premised on extraction. The more money bankers can extract from the economy, the bigger their end of year bonuses will be. In municipal finance, this means diverting public dollars that are supposed to be spent on Main Street back to Wall Street. As tax rates for corporations and top income-earners have declined over the past 35 years, cities and states have been forced to take out debt to pay for things they used to be able to afford. This has provided banks with the opportunity to extract vast amounts of taxpayer dollars. Outstanding municipal bond debt has grown tenfold since 1981, from $361 billion to $3.7 trillion (see Figure 2). [Emphasis added.]
US mayors have started to fight back against exorbitant Wall Street fees that are breaking city budgets. In June 2015, the US Conference of Mayors passed a resolution on strengthening city finances; it specifically focuses on making Wall Street fees better aligned with actual services and mentions establishment of public banks as a way to break free of debt.
What’s This Got to Do with Pima County? Plenty.
In the excerpt above, author Saqib Bhatti notes that multiple years of tax cuts for multinational corporations and America’s richest citizens have resulted in successfully starving government at all levels. How many unaffordable corporate tax cuts has the Arizona Legislature passed since the 1990s? I’ve lost count. Even in 2015– when Governor Doug Ducey was poised to slash and burn k-12 education, community colleges and universities, when it was obvious to everyone (even former Governor Jan Brewer) that Arizona couldn’t afford more corporate giveaways, Ducey allowed more corporate tax cuts to become law. Shortly after taking office, he infamously said that just because we don’t have enough money doesn’t mean we need to raise revenue. Why? Because Ducey is a pawn of the corporatists who paid $12 million to buy the governorship for him.
Down here in this little blue spot called Tucson, we know that we “can’t have nice things” because of wasteful spending, sweetheart deals, and corporate giveaways passed by the Arizona Legislature. Pima County residents don’t have the libraries, parks, schools, roads, community centers, and historic/cultural amenities that we want because Republicans in the Legislature gave our money away to multinational corporations that are not headquartered in Arizona. The problem is: Filling the monetary gap by borrowing from Wall Street only exacerbates our financial problems and increases the flow of money OUT of our state and OUT of our local economy– thus starving our economy instead of growing it. It’s a trap. It’s a web of debt.
Crunching the Numbers
The Yes group is trying to sell the bond package as no big deal financially, emphasizing that it will cost homeowners only $18/year on the average property tax bill. They add that Pima County hasn’t reached it’s debt limit (which is a good thing). Just because you haven’t maxed out your credit card doesn’t mean you should.
The No group is emphasizing higher taxes and unsustainable debt. The No group points out that the county already is $1.35 billion is outstanding debt and passage of all bonds would result in an additional $1.6 billion in debt ($816 million in principle, and estimated $264 million in interest, and an estimated $545 in operations and maintenance of new facilities and roads). In the graphic above, I plotted per capita (per person) debt by county, using the data provided by the Department of Revenue and published in the Star. It shows that at $1330/person, Pima County currently has the highest per capita debt (before the bond issue); the total county debt (all governmental debt in the county, including the City of Tucson) is $3584 per capita, second only to Maricopa County’s total debt of $4472 per capita, which has several large cities and millions of residents.
This is the graphic that really worries me. In the first year, the county will be paying $7.7 million in principle and interest on the debt; over five years, that payment will steadily increase threefold to $25.6 million. By 2030, that payment will be $75.6 million. Will our local economy be that much better in 15 years than it is now? Will we be able to absorb a 10-fold increase in the principle and interest? What percentage of that $75.6 million will taxpayers have to pay? A lot can happen in 15 years– particularly when you factor in climate and water supply. (Remember the Detroit water bills?) A very comprehensive article in the Star (here) says that property owners will pay the debt service. My question is: how much of that $75.6 million will we property owners be paying? Here is a Pima County table showing rates; maybe you can figure it out.
Gettin’ Right Down to the Real Nitty Gritty
The bond battle is a David and Goliath affair “involving one well-funded, well-connected faction and another that is small and poor but seems to feel it has truth on its side,” according to the Arizona Daily Star. Out-fundraising the No group by 10 to 1, the Yes on Pima County Bonds group is backed by local corporations and businessmen, many of whom will benefit from passage of the bond issue. Both the Arizona Daily Independent (here and here) and the Arizona Daily Star (here) have covered the
backroom deals …er… gentlemen’s agreements. Here are some facts from the Star article…
Any politician who says, “All of our deals are fine” — that should be a red flag. Anyone who says, “We’re sophisticated and we know what we’re doing” — that should be a red flag. Anyone who tries to obscure what’s going on by muddling it in complexity, to make it hard to understand — that should be a red flag. What we should be looking for is people who can actually talk about this in a way that makes sense.
One of the tricks Wall Street has when it comes to municipal finance and when it comes to finance more generally is to make things seem overly complex, so complex that people stop caring and believe they can’t possibly understand it. That’s not actually the case. In reality, most of these things can be understood and can be talked about in plain English, and what we really need is more elected leaders who are willing to break these things down and talk to voters about them in a way that they can understand and that can offer real, common-sense solutions that don’t take a finance degree to understand. At the end of the day, this stuff does not need to be so complicated. Anyone who’s promising another complicated financing scheme as a solution is probably not actually going to be able to deliver on that because the more complex you get, the more heavily weighted things are in the banks’ favor.
In conclusion, I agree with spending money on drainage improvements, libraries, community centers, parks, neighborhoods, and cultural/historic amenities, but I don’t agree with going into debt to Wall Street to finance these projects, when we can self-finance if we think outside of the box and establish a public bank at the county level.
I don’t agree with the multiple corporate welfare projects attached to this bond package. Establishing a public bank to prioritize and fund a more modest and sustainable set of projects would be less risky than borrowing on a hunch that you will attract businesses to fill the multiple buildings proposed. The build-it-and-they-will-come mentality has not worked for other cities. Corporate giveaways only benefit the corporations– not the people. We should be investing in small, Arizona-grown businesses— not chasing rainbows and call centers.
I agree with fostering technology and innovation; I talk about this regularly when I give my public banking presentations. Do we need two buildings and a road to do that? No. How about funding seed grants for young scientists to gather pilot data? This would be far cheaper, and we would be directly funding research– rather than funding bricks and motor. The UA Foundation has years of data showing that seed grants to scientists are worthwhile investments because seed grants allow them to gather pilot data and use those data to apply for larger grants– thus supplying good-paying jobs. At a public meeting, I asked how many research jobs the local economy would gain by building two buildings and a road for the University, and the only answer I got was that it would foster short-term construction jobs. That’s not enough.
My advice to voters: Ask questions and choose wisely on November 3.
Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free [Read this book, and it will change your life.]
Pamela Powers Hannley is co-director of Arizonans for a New Economy, a member of the Board of Directors of the Public Banking Institute, and a progressive candidate for the Arizona State House, representing Legislative District 9.