MacIver News Service | Oct. 19, 2018
By M.D. Kittle
MADISON – The Wisconsin-based Public Finance Authority has drawn fire from critics over the types of projects the bond issuer has been involved in, and where those projects are located.
But it seems Tony Evers, Wisconsin’s education chief and Democratic candidate for governor, has enough faith in the shadowy, quasi-public “bonding house of last resort” to invest.
Evers in his most recent statement of economic interests lists the Public Finance Authority under “Other Investments,” in the document’s “Wisconsin Governmental Security” category. He claims in two separate listings to hold between $5,000 and $50,000 in PFA investments. “Other Investments” includes mutual and money market funds, stocks, bonds, limited partnerships, and Wisconsin governmental securities – valued at $5,000 or more – held by the officeholders, candidates for office or family members, according to the statement.
The bonds are not sold in denominations less than $25,000, according to the finance authority.
State officials and candidates for office file the statements when entering the public arena. The ethics disclosures – which identify employers, investments, real estate, investments, commercial clients, and other financial transactions – must be annually updated.
Evers’ statement, filed this year for calendar year 2017, shows a variety of government securities, from city of Oshkosh general obligation bonds to investments in Wisconsin health and education facilities.
He also lists several investments under the Wisconsin Deferred Compensation Program, a supplemental retirement savings program open to all active state and university employees.
His opponent, Republican Gov. Scott Walker, notes no investments in the Public Finance Authority. Last year, Walker rejected a move to grant the bond issuer more power. The governor’s most recent statement includes investments in three separate mutual funds, and 57 items under “Entertainment and Gifts.”
While Evers’ investments are standard fare for a long-time government bureaucrat, the PFA securities stand out because of the controversy the conduit bond issuer has generated in recent years.
The PFA, created in 2010 through bipartisan legislation, connects investors to tax-exempt “conduit bonds” for “public benefit projects.” It has the backing of the National Association of Counties, the National League of Cities, the Wisconsin Counties Association and the League of Wisconsin Municipalities.
“(C)reated by local governments, for local governments,” the authority’s goal is to increase and streamline economic development projects, according to the PFA’s website.
The bond issuer handles high-risk bond deals, not for the faint-of-heart investor. Some of the projects financed by those bonds have come under scrutiny by government oversight agencies.
Last year, Walker vetoed a provision that would have expanded the PFA’s power, giving it the ability to take private property through eminent domain. The governor did so at the request of three conservative senators who threatened to vote against the overdue 2017-19 budget unless the governor removed the PFA language.
State Rep. Scott Allen (R-Waukesha) has called for an audit of the finance authority. Allen has been critical of the Wisconsin-based PFA’s relatively minuscule investment footprint in the Badger State.
As of last year, the PFA, the domain of a California entity, did not have a single employee in Wisconsin.
“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 told MacIver News in September 2017.
As MacIver News Service first reported, the PFA has built a multi-billion dollar tax-exempt and taxable conduit bonds business by brokering deals like a $30 million bond package for Planned Parenthood Federation of America’s national headquarters in New York City. Or a massive shopping and entertainment center, “situated along the (New Jersey Turnpike) at the Meadowlands, with the multi-colored facade and indoor ski slope that has become the butt of many Jerseyans’ jokes,” as a recent story in NJ.com described the 3.2 million square-foot complex.
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 quasi-public PFA.
The university’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.”
In July 2017, the IRS released a preliminary ruling, concluding the $26.5 million of bonds issued by the Public Finance Authority for the Statler Hilton development project in Dallas are taxable, according to the Dallas Morning News.
In its ruling, the IRS said the zero coupon bonds should be taxable rather than tax exempt. The PFA and its attorney, San Francisco-based Orrick, Herrington and Sutcliffe, told the publication in August 2017 that they disagreed with the IRS’ preliminary findings, and are challenging the tax-class ruling.
The IRS audit is ongoing, an attorney for the PFA told MacIver News Service this week.
Meanwhile, the Securities and Exchange Commission has concluded its investigation into the project’s bond offering. The commission earlier this year informed the PFA that it did not intend to recommend enforcement action against the authority, according to an SEC letter obtained by MacIver News Service. Eric Werner, SEC assistant regional director, cautioned, however, that the notice “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.”
It’s not clear why Evers invested in the PFA. The candidate’s campaign did not return several requests for comment this week.