More Questions Surface About Shadowy Public Finance Authority

MacIver News Service | September 28, 2017

By M.D. Kittle

[Madison, Wis…] In 2016, the University of Kansas bypassed the state Legislature in securing nearly $327 million in bonds for a slate of building projects.

Instead of seeking approval from lawmakers, the university appealed to the Wisconsin-based Public Finance Authority, the shadowy, quasi-public agency described as the “bonding house of last resort.”

The PFA came under fire this month, in the closing days of Wisconsin’s extended budget-writing process, when lawmakers slipped in a provision that would have expanded the authority’s powers. Under the measure, the PFA would have been granted the ability to take private property through eminent domain.

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Gov. Scott Walker vetoed the expanded powers provision, at the request of three conservative senators who threatened to vote against the overdue 2017-19 budget unless Walker removed the PFA language.

The Finance Authority was born in 2009 through state legislation. Its purpose: finding investors for tax-exempt and taxable “conduit bonds” for so-called “public benefit projects.”

But for a Wisconsin-based financing agency, the PFA has done very little business in the Badger State. Instead, it has built a multi-billion dollar tax-exempt and taxable conduit bonds business by brokering deals like the one at the University of Kansas, or a $30 million bond deal for Planned Parenthood Federation of America’s national headquarters in New York City, the latter being one of PFA’s first projects.

The University of Kansas’s end-around the Legislature and the Kansas Development Finance Authority didn’t sit well with lawmakers, who blasted the arrangement as “circumventing legislative oversight and escaping the public view.”

While KU officials insist they were only trying to save the state money while completing important projects, lawmakers weren’t buying it.

“It seems to me KU is flying the starship Enterprise through our statutes, trying to avoid a transparent process that’s accountable to taxpayers and students both,” Rep. J.R. Claeys, R-Salina said during a legislative hearing into the financing controversy.

House Republicans were drafting legislation to prohibit such bonding deals in the future.

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The PFA’s heavy involvement in projects nationwide, and its limited involvement in the state that created it, is a big concern for one Wisconsin lawmaker in particular.

State Rep. Scott Allen (R-Waukesha) voted against the Assembly version of the state budget because it included the expanded powers for the PFA. He then called on the Legislature’s audit committee to perform an audit of the agency.

Out of the numerous projects for which the Finance Authority has issued bonds, relatively few have been based in Wisconsin and only two have been located within the jurisdictions of the founding Wisconsin local governments, according to the lawmaker.

The bond broker was ostensibly formed by four Wisconsin counties and the City of Lancaster, and originally with unanimous legislative approval. But the antecedent to the PFA was created in California by municipal bond movers and shakers, Stephen Hamill and Gerald Burke. They are the brains behind HB Capital Resources, Ltd., HB Consulting, LLC, and US Communities.

The Los Angeles Times in 2011 wrote that Burke and Hamill “do jobs normally reserved for public employees. They just make a lot more money doing it.”

“The former Alameda County public servants have made tens of millions of dollars for their private company by coming up with a novel method of issuing tax-free municipal bonds,” the Times reported.

“By law, these bonds must be issued by government agencies to finance projects with a public benefit, such as highways and hospitals. Hamill and Burke have harnessed this process for profit by working with a little-known public agency they helped to create called the California Statewide Communities Development Authority.”

According to the Times, a Los Angeles County staff report concluded in 2008 that CSCDA is a “shell entity operated solely by a private contractor.”

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HB Capital took its show on the road in 2010, launching the Public Finance Authority in Wisconsin, again, with the unanimous assistance of the state Legislature. Wisconsin gave the agency the “unusual power” to issue municipal bonds anywhere in the country.

It does all of this without a single employee in Wisconsin, PFA officials told Allen, the Waukesha lawmaker. Allen said the bond issuer contracts any of its required services. Administrators of the Finance Authority’s sponsoring organizations – the Wisconsin Counties Association, and the League of Wisconsin Municipalities – did not respond to MacIver News Service’s requests for comment.

Allen said PFA officials provided him a document showing that the founding members and the sponsoring organizations help promote the authority’s economic development efforts. For those services, they receive compensation. PFA officials would not disclose how much.

In 2011, government officials in states such as Rhode Island were urging their legislatures to block the PFA from doing deals that are in the purview of state-created development agencies, according to the L.A. Times.

“This isn’t what municipal finance is about,” Robert Donovan, the head of one of Rhode Island’s largest public-bond-issuing authorities, told the publication. “Pay to play is a dirty word. Now we’re looking at pay to issue.”

Allen says he wants to gather as much information on the PFA as possible to build a case for an audit. He says the most compelling reason for the Legislature to take a closer look at the PFA is because it has not done so since the agency’s launch seven years ago.

“When it was suggested that less than 2 percent of their work is being done in Wisconsin, I have to question why the Legislature created it in first place. It wasn’t to do work in Kansas or Idaho or Nevada or elsewhere,” Allen said.