Wis. authority arranges business loans nationwide
- Associated Press
- December 26, 2013 - 9:55 AM
MADISON, Wis. — A little-known government entity in Wisconsin has arranged more than $1.3 billion in mostly tax-free loans to businesses nationwide, including Planned Parenthood in New York, a California-based chain of Christian radio stations and a grocer in Mount Horeb.
The Public Finance Authority has delivered reduced-tax financing in 33 states in the just over three years ago since its creation, the Wisconsin State Journal reported Thursday (http://tiny.cc/rzep8w ).
Supporters say the PFA spurs vital business expansion without risk to taxpayers, while the type of debt the authority issues has drawn criticism.
Unlike conventional government bonds that guarantee lenders will be repaid, the "conduit bonds" offered by the PFA and other government agencies simply bring together investors and developers and then grant tax-exempt status to the interest earned by the investors.
The PFA is one of a few agencies nationwide doing deals unrelated to their home states and run without a public employee as director, said James Hamill, program manager for HB Capital Resources in Walnut Creek, Calif. Almost all the work is done by Hamill's company.
The PFA was created after the National Association of Counties asked the Wisconsin Counties Association to help create a new agency to issue tax-exempt bonds nationally, said state association chief of staff Mike Blaska.
Fewer than a quarter of the authority's 46 projects since 2010 have involved investment in Wisconsin. Nationally, most were for construction of charter schools, along with medical and housing facilities, Hamill said.
Bonds for private investment have grown in popularity. They are able to set lower interest rates for borrowers because investors pay no taxes on interest they earn. And governments use bonds to compete with neighbors for investment that creates jobs and tax base, said Andrew Reschovsky, a professor of public affairs and applied economics at the UW-Madison La Follette School of Public Affairs.
It seems like everyone wins, but whenever someone is exempted from a tax, other taxpayers pick up the slack, he said.
Despite concerns about a high default rate from the type of debt issue by conduit bond entities, Hamill said the PFA has had no defaults. HB Capital also runs California Statewide Communities Development Authority, which Hamill said has issued bonds for about 1,300 projects worth $48 billion since 1988 with only three defaults.
Every PFA project requires approval from state or local governments where the development will occur, Hamill said. All deals in Wisconsin are exempt only from federal taxes, he said.
The PFA issues bonds that other government agencies won't, Hamill said.
"Sometimes the municipalities don't have the staff, time or expertise," he said.
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