“IRS bond proposal seen as crippling” (June 1), regarding municipal bond tax regulations, raises serious questions that do not have simple answers.

As a former chair of the St. Paul Port Authority, my colleagues, port staff members and I had the opportunity to see firsthand how these tax-benefited bonds can play an important role in community development, and at the same time see the effects of prior wasteful issuances by the city. The issue is not whether the issuer of the bonds is controlled by elected officials or by an appointed community authority such as the Port Authority or a housing authority. The issue is the nature of the use, and who benefits from the “subsidy” afforded by the tax-exempt nature of the interest.

While the accountability of a fully elected board, such as a city council, is an important consideration, that’s not a foolproof remedy for the bad or unwise use of tax-exempt bonding. In the now-distant past, the St. Paul City Council and mayor issued millions of dollars in bonds to support the construction of major downtown projects that proved to be noneconomic and that created major fiscal problems for the city.

Ultimately, these properties and their management were turned over to the Port Authority to put the problem in the hands of professionals capable of managing, marketing, and selling the properties and applying the proceeds for the benefit of the bondholders and, accordingly, the city’s credit. This kind of expertise is not generally found on elected governing bodies.

Another important reason why housing and port and similar appointed community-development bodies are often the best entities to determine when community resources, such as available tax-exempt capacity, should be used is the very fact that they tend to be much less political. Decisions are often made solely on a financial basis.

Another reason is that in St. Paul, the Port Authority was and has continued to be the primary agent of remediation of contaminated real estate, which in turn has allowed the eventual sale to a for-profit or exempt user that would not or could not cover remediation costs. In those circumstances, the issuance of tax-benefited bonds turns an impossible project into a workable one, adding revenue and salaries where only blight had existed.

All of that being said, the concerns of the IRS that tax-exempt financing is being abused are not without basis. While in St. Paul, the Port Authority’s approval of the issuance of bonds is always subject to the approval of the City Council, the elected officials the regulation seeks, it still may not qualify under those proposed regulations. Either way, that oversight may not always be in place in other communities.

The solution, I believe, lies in clearer definition of permitted uses for the proceeds of the bond sales and the necessary direct, tangible benefits to the city or town. This excludes the imagined “projected benefits” such as the “long-term” value of a sports franchise or being a “major league city” or other “pie in the sky.”

These are complicated issues. A good example is the redevelopment of the area around the proposed soccer stadium in Midway.

We see the team’s and the adjoining property owners’ benefits. But can a determination be made of direct benefit to the larger community? That is for others to say, but as I said at the beginning, it’s really complicated and not answered by who is issuing the bonds, so much as by how the benefits are used and regulated.

 

Michael Goldner lives in Minneapolis.