Summary and Keywords
Public authorities are agencies created by governments to engage directly in the economy for public purposes. They differ from standard agencies in that they operate outside the administrative framework of democratically accountable government. Since they generate their own operating income by charging users for goods and services and borrow for capital expenses based on projections of future revenues, they can avoid the input from voters and the regulations that control public agencies funded by tax revenues.
Institutions built on the public authority model exist at all levels of government and in every state. A few of these enterprises, such as the Tennessee Valley Authority and the Port Authority of New York and New Jersey, are well known. Thousands more toil in relative obscurity, operating toll roads and bridges, airports, transit systems, cargo ports, entertainment venues, sewer and water systems, and even parking garages. Despite their ubiquity, these agencies are not well understood. Many release little information about their internal operations. It is not even possible to say conclusively how many exist, since experts disagree about how to define them, and states do not systematically track them.
One thing we do know about public authorities is that, over the course of the 20th century, these institutions have become a major component of American governance. Immediately following the Second World War, they played a minor role in public finance. But by the early 21st century, borrowing by authorities constituted well over half of all public borrowing at the sub-federal level. This change means that increasingly the leaders of these entities, rather than elected officials, make key decisions about where and how to build public infrastructure and steer economic development in the United States
What Are Public Authorities?
Public authorities vary widely, but they tend to share three defining features that set them apart from other kinds of government agencies. First, rather than relying on legislative appropriations, they are largely (and in some cases entirely) self-funding through their own commercial activities. Second, their leaders are appointed, rather than elected. Third, they are treated by the courts as independent legal entities, distinct from the governments that created them.
The key defining feature of the public authority is the ability to fund itself, an attribute so basic that it has been called the mechanism’s “heart.”1 Thus, these mechanisms can be used to provide new infrastructure or services without the necessity of asking voters to support higher taxes or bond issues. In addition, authorities are often able to circumvent statutory and constitutional limits that constrain general-purpose governments below the federal level. Initially, authorities were established to finance, build, and operate facilities, such as roads and bridges, for which users could be charged. Revenue from these charges took care of operating expenses, but it also provided collateral for loans to cover capital expenses, using financial instruments called “revenue bonds.” While many public authorities still build and manage the facilities they finance, these mechanisms have been increasingly deployed simply to borrow funds in the tax-exempt municipal bond market for a variety of purposes, a practice known as conduit or back-door financing.2
The second defining feature of public authorities is appointed, rather than elected, leadership, which means these instrumentalities do not have the power to levy taxes. The inability to tax is what sets them apart from special districts, their close cousins within American government. In theory authorities must support themselves completely on the basis of their commercial activities. In reality, however, many do receive support from tax-supported general-purpose governments, as when the governments that create them become their customers, and courts have allowed these practices. A more indirect, but still extremely significant, form of assistance is the implicit guarantee assumed by investors that the debt of these units will be covered by the parent government should the authority encounter business setbacks.
The third defining feature of public authorities is that they are legally distinct from the governments that create them. In most cases they are formally incorporated, which is why they are often referred to as “government corporations.” Their independent legal identity means they can engage in market activities more flexibly than standard government agencies. For example, they can sue and be sued like a private business enterprise. In addition, they are free of the regulations governing personnel, purchasing, and subcontracting that apply to conventional government agencies.
Public authorities come in a variety of sizes. Many are huge. For instance, the Tennessee Valley Authority (TVA), created by the federal government during the New Deal to generate electricity, among other responsibilities, posted revenues of close to $12 billion in FY 2011.3 Another giant is the Tampa Port Authority, created by the state of Florida, which engineered the renaissance of the city’s deteriorated commercial waterfront and transformed it into a profitable cargo port, a major cruise center attracting millions of passengers, and a popular entertainment destination.4 In contrast to these behemoths, most public authorities are small- to medium-sized organizations, in charge of a single operation. A good example is the Springfield Parking Authority (SPA), in Springfield, Massachusetts. The SPA operates five garages and eight lots, generating, in 2004, $1.4 million in income.5
Despite the size of entities such as the TVA and the Tampa Port Authority, and the ubiquity of their smaller cousins such as the Springfield Parking Authority, even close observers of American government have been apt to overlook these kinds of institutions. Robert A. Caro, whose widely read biography of the “power broker” Robert Moses did so much to publicize the significance of self-supporting agencies that were administratively and legally independent of the elected officials and legislatures that created them, confessed that before starting the book he wondered “what a public authority was, anyway.” And Caro was a journalist who specialized in politics!6
One reason for the obscurity of these agencies is that basic information about them is hard to get. Using different definitions and hindered by lack of data, experts in public administration cannot even agree on how many there are, and estimates vary from five thousand to eighteen thousand. The difficulty in identifying and counting these bodies stems from the fact that the federal government and states create them in a bewildering variety of legal formats and do not keep track of them in any systematic way. Indeed, most states would be hard pressed even to list their authorities. In 2004, the New York State Comptroller’s office conducted an investigation that initially determined that the state had 643 authorities, but after several more months of digging discovered almost 90 more.7
Labels do not provide a useful guide, since revenue-producing, administratively and legally independent units have been given an array of titles. They have been called boards, commissions, agencies, trusts, districts, administrations, public corporations, public benefit corporations, and government corporations—in addition to the generic name by which they are best known: public authorities. Just to add to the confusion, some of these labels are also used to designate units within general-purpose government. At the federal level, difficulties of classification are exacerbated by the fact that Congress has created entities called “corporations,” such as the Legal Services Corporation and the Corporation for Public Broadcasting, that are not primarily commercial in character, in order to provide them with more autonomy and insulate them from management rules that govern standard agencies.8
Even though we cannot reliably determine the precise number of public authority-type agencies, we can get a rough sense of the scale of their activities by looking at patterns in public borrowing. Most authorities fund their capital facilities by borrowing against future earnings, issuing what are called “revenue bonds” (as opposed to the “general obligation bonds,” backed by taxing power, used by general purpose governments). The figure below indicates trends in the two kinds of debt. From 1949 to 2002, revenue-based debt increased fifty-six-fold (in constant dollars). General-obligation debt also increased, but only five-fold. As a result, revenue bonds, which made up only one-eighth of total sub-federal public indebtedness fifty years earlier, constituted five-eighths of such debt by the end of the century.9 This represents a sea change in the institutional character of public economic activity.
The Roots of the Public Authority
Public-authority type agencies first appeared at the turn of the 20th century. This was a time when public officials began trying to create tools with which government could directly intervene in the economy in ways that were impractical or legally proscribed if pursued with existing administrative machinery. The federal government used the model extensively up through the Second World War and promoted a version that localities and states could employ to receive federal loans during the Great Depression. In the second half of the 20th century, these institutional structures lost favor at the national level, even as they became practically ubiquitous at the state and local level.
Public authorities had antecedents in the government-chartered corporations of the early 19th century, the best known of which were the First and Second Banks of the United States. These enterprises were granted special privileges on the expectation they would pursue public purposes, in addition to private profits. Even though governments often invested in them, these companies were essentially private business operations, set up with the goal of making money for shareholders.10 By contrast, the modern public authority is a unit of government organized on the model of a corporation, but with no private investors.
Public officials began crafting this new kind of government unit at time when industrialization and urbanization were drastically transforming the country, creating pressure for governments to furnish new kinds of infrastructure and services. The template for what became the public authority evolved through a process of trial and error, as policy entrepreneurs searched for ways to respond. The challenge was to create administrative mechanisms that could enable governments to transcend the limitations of a legal structure that severely constricted their ability to engage in economic activities.
A variety of motives were in play. For some, it was simply an effort to find ways to finance infrastructure. Others aimed at creating public agencies that could break free of the annual funding cycle controlled by legislative bodies, in order to respond dynamically to changing market conditions and permit long-range economic planning. Still others envisioned institutions able to address issues related to social justice and economic equality in ways that unconstrained markets cannot. For many it was some mixture of all these purposes. In another context general purpose governments, perhaps using non-standard but still democratically accountable agencies, might well have been capable of meeting those goals, but the structure of government as it had developed historically in the United States made this extremely difficult.
The principal barrier to activist government at the sub-federal level in the early 20th century was the way that citizen anger over the reckless economic development schemes pursued by public officials in earlier decades had congealed into a crippling institutional legacy. During the 19th century, state and local governments had borrowed lavishly to subsidize canals, turnpikes, and especially railroads. Corruption was an issue, but even investments undertaken in good faith often failed to deliver promised benefits. Furious taxpayers who were left to pay off the debts demanded severe limitations on future government borrowing. In response, practically every state adopted rigid laws and constitutional amendments restricting the amount of debt governments could assume and prescribing cumbersome procedures for voter approval of bond issues (often requiring supermajorities). Debt caps for municipalities were set at a percentage of appraised property values within the jurisdiction (typically 5 percent). These caps were too low to finance the capital-intensive infrastructure increasingly demanded by urban residents, such as water and sewer systems, street lighting, and electric streetcars.11 The whole framework of local public finance was inappropriate for an economically expanding, urbanizing nation, but in the short run circumvention was easier than attempting basic reforms. Two general strategies of circumvention predominated; these ultimately came together to form the public authority.
Creating new government units not bound by existing debt limits was the first strategy, because it built on a familiar approach. Urban politicians employed “special assessment” or “special taxing” districts for decades as a way to give property owners in different neighborhoods the opportunity to decide whether to incur the costs of improvements such as paved streets and sewers.12 Special districts became increasingly popular starting in the late 19th century. Many were established to deliver services over areas that made sense functionally but that overlapped existing political jurisdictions (for example, the Boston area Metropolitan Water District, established in 1895).13 However, many special districts were designed simply to bypass debt caps, as when the Indiana legislature, in 1917, authorized a park district and a sanitary (sewage disposal) district that covered virtually the same territory as the city of Indianapolis. The legislature bestowed independent borrowing powers on each, specifically mandating that their debts not be a legal obligation of the city. As one commentator was quick to point out at the time, Indianapolis, which already had an independent school district, had become “four separate, legally distinct municipal corporations over what is for all practical purposes the same area.” The obvious effect was a substantial increase in the city’s borrowing capacity, making it possible to construct infrastructure that previously was impossible to finance.14
In addition to providing a fiscal escape hatch, special districts possessed a variety of attributes that appealed to different constituencies. For example, state-level politicians sometimes wanted to remove control of new functions from local elected officials, either to obtain greater professionalization of management or to secure patronage possibilities for themselves. But whatever else they offered, special districts appealed because they provided an easier alternative than confronting the baroque layers of constraints on municipal finance that had accumulated over the decades in state statute books and constitutions.15
The second strategy for escaping the yoke of borrowing limits employed the doctrine of the “special fund,” which was used to legitimate what were called “revenue bonds.” Local officials argued that revenue from income-generating projects should be regarded as a separate account (i.e., a special fund), against which cities should be able to borrow, independent of laws that applied to municipal debt backed by tax revenues. Spokane is credited with pioneering the special fund concept when it convinced the Washington Supreme Court in 1895 that city bonds designated as payable exclusively from the income of its waterworks should not be considered a general obligation of the city. After the legislature explicitly authorized this method of financing, the state’s largest city picked up the ball and ran with it. Seattle issued millions of dollars’ worth of revenue bonds to purchase its bankrupt local street railway system and to develop the vast utility empire known as City Light.16
Special districts and revenue bond financing proved to be useful devices for funding public sector activities, but setting them up was laborious. Without general authority to use these mechanisms, municipalities needed to seek specific legislative approval for each one. Otherwise they could go through all the steps of putting together a complex financial arrangement, only to see it crumble in the face of a lawsuit. For example, in 1930, the Iowa Supreme Court scotched the small town of Sidney’s plan to acquire an electrical plant through a method that was essentially a variant of revenue-bond financing. The town proposed to use an earmarked account, funded by charges to residents for electricity, to pay a private company to supply generating equipment. The court voided the contract, ruling that although the legislature had granted cities and towns authority to own and operate their own electric plants, no “express power” had been granted to Sidney to use revenue-based financing.17
The Public Authority Template Comes into Widespread Use
President Herbert Hoover during the Great Depression began the process of changing the rules for local public finance such that revenue-based financing, and ultimately the public authority, became standard practice. (This outcome seems to have been unintended, as it is likely that Hoover was unfamiliar with local public finance regulations; ironically, the changes he set in motion at the local level came about as he attempted his own end run around the existing framework of public finance at the federal level.) In 1932, under enormous political pressure for a federal public works program to provide jobs for the unemployed, but still insistent on a balanced budget, Hoover devised a revenue-neutral plan for local aid.
Hoover’s plan was for the Reconstruction Finance Corporation (RFC), the newly established federal investment bank, to make loans to states and localities for “self-liquidating” public works. By this he meant projects that could generate sufficient revenue from fees and tolls to pay off the loans that had financed their construction. Clearly delighted by the cleverness of the scheme, Hoover pointed out in a letter to the American Society of Civil Engineers that the program “requires no Congressional appropriation, does not unbalance the budget, is not a drain upon the Treasury, does not involve the direct issue of government bonds, does not involve added burdens upon the taxpayer either now or in the future.”18 It was indeed an ingenious concept, and Congress cooperated by enacting it into law in July 1932 as the main plank of the Emergency Relief and Construction Act (ERCA). There was only one hitch: the program barely functioned.19
Hoover hoped the ERCA program would help him in the upcoming presidential election in the fall of 1932, but that was not to be. Congress authorized the RFC to make ERCA loans totaling $1.5 billion. By the time of the election, however, less than $1 million had been approved. At the end of its eleven months of existence—it was taken over in June 1933 by the New Deal’s Public Works Administration (PWA)—Hoover’s initiative had spent only $30 million, a mere 2 percent of its allocated funds. Most of that went to a few large projects. Observers were livid. The New Republic lambasted RFC lawyers for “stick[ing] all the pins they can through every project submitted,” while U.S. Senator Robert Wagner bemoaned the “mile after mile of red tape.” When the RFC approved two multimillion-dollar projects in California before the election, Democrats accused the administration of trying to buy the state for Hoover.20
In truth, it was not finicky lawyers, too many forms, or partisan politics that prevented federal money from flowing to the local level. The main impediments were institutional—the same laws and constitutional amendments limiting debt financing of capital improvements that had hemmed in activist local officials for years. The legislation specified that the RFC make loans by buying the bonds of municipalities. But few local governments, even if they managed to write plausible proposals, could legally accept RFC loans. The Depression had pushed most municipalities close to, or over, the brink of their borrowing limits. More than three thousand municipalities went into default during the 1930s. Quite a few were reduced to meeting payrolls with scrip. This meant that general-obligation bonds were not an option, and few municipalities were already authorized to issue revenue bonds. When Congress passed Hoover’s urban aid package, only nineteen states had legislation on their books that allowed revenue-bond financing, and most of those statutes designated specific projects.21
State legislatures failed to respond with any speed. For the most part, those bodies were not very functional. Turnover of elected officials was high and professional staffs small, and most state legislatures simply were not in session much. In 1932 more than half never convened. The debt caps written into thirty of the forty-eight state constitutions were particularly daunting barriers, as amending these documents generally involved popular and legislative elections spaced over several years.22
Meanwhile, the escape hatches of special districts and revenue bonds had to be individually crafted, and that took time. The two giant California projects funded by ERCA that Democrats complained about—the Bay Bridge connecting San Francisco and Oakland and the Metropolitan Aqueduct (also known as the Colorado River Aqueduct) carrying water from the Colorado River to Los Angeles—already had explicit approval from the state to borrow on the basis of their projected income streams. Preexisting borrowing authority, not partisan machinations, allowed those projects to be funded more quickly than others.23
Yet even as Hoover’s program was stymied by the existing legal environment, it started to transform that environment. Lured by federal dollars, state legislatures began liberalizing their public finance laws. Quite promptly, considering the impediments to action, states began passing general enabling statutes that gave municipalities broad grants of power to finance projects using anticipated income as collateral for borrowing. During 1932 and 1933, fourteen states first put statutes authorizing the use of revenue bonds on their books, while many of the nineteen that had previously allowed such financing liberalized their existing laws.24
The New Deal’s PWA, established in the summer of 1933, took over Hoover’s program and made it work. That the PWA was more successful is not surprising. Its enabling legislation allowed the agency to offer easier terms (including outright grants, in addition to loans, which softened the requirement that projects pay for themselves). Even more significant, the PWA was administered by people with a greater understanding of the institutional environment in which such a program had to function. Harvey Couch, who headed ERCA for Hoover, was a brilliant Arkansas businessman who built a financial empire in telephones, electricity, and railroads from almost nothing, but he had little familiarity with the legal intricacies of local government. By contrast, Harold Ickes, the PWA administrator, was a lawyer who came to Franklin D. Roosevelt’s cabinet with forty years’ experience fighting for municipal reform in Chicago. Whereas Couch evidenced little awareness of the obstacles cities faced when trying to finance capital improvements, Ickes began his tenure by setting his legal staff to work helping local and state officials craft broad new statutes that simplified procedures for borrowing against future income. By 1937, PWA lawyers had drafted over five hundred bills, and forty-one states had adopted enabling legislation for revenue-bond funding.25
By themselves, however, revenue bonds had limitations. The biggest was that state courts sometimes balked at the premise of the special fund and insisted that any debt a municipality took on be counted against its constitutional debt limit. To avoid such problems, the PWA and President Roosevelt himself promoted new approaches. In 1934 Roosevelt sent a letter to all forty-eight governors urging them to draw on the expertise of the PWA’s Legal Division to liberalize municipal finance laws so that they could take advantage of federal credit “at least for the duration of the existing emergency.” The president’s first recommendation was the simplification of regulations so that municipalities could borrow more freely. But where this was not feasible, he suggested state officials set up legal machinery to permit the creation of what he called “municipal improvement authorities” or “non-profit benefit corporations,” which he defined as legally independent instrumentalities that could finance themselves by borrowing against future revenue.26 In essence, Roosevelt and the PWA popularized what came to be known as the public authority, an institutional template that combined the funding strategy of revenue bonds with the organizational device of special districts.
Roosevelt was familiar with this organizational model given his association as governor with the Port of New York Authority. This agency was initially envisioned by its designer, attorney Julius Henry Cohen, as a mechanism with wide powers similar to the Port Authority of London, from which Cohen borrowed the term “authority.” Cohen advocated a bi-state agency directed by a politically insulated appointed board that would coordinate transportation in the clogged New York harbor. As it ultimately emerged in 1921 after intense wrangling, the Port Authority covered a huge territory across two states, but lacked regulatory and taxing powers. It did, however, possess the ability to float bonds to build income-producing infrastructure, an ability it strikingly put to use with the construction of the George Washington Bridge spanning the Hudson River. Longer than any previous suspension bridge in the world, the bridge was an impressive engineering achievement. It also represented a significant administrative achievement, particularly in contrast to the cost overruns and delays caused by political infighting that marked the construction of the Holland Tunnel built only a few years before. At the opening ceremonies in 1931, Governor Roosevelt commended the Port Authority’s management of the bridge project, calling the agency’s “disinterested and capable service . . . a model for government agencies throughout the land.”27
The public authority template was widely utilized while the PWA and the RFC were offering loans to states and local governments during the New Deal. Many assumed, however, that these mechanisms would be of little use after the federal aid programs ended. Private investors were generally unfamiliar with revenue bonds, and in any case, disinclined, given the rocky finances of local governments during the Depression, to invest in municipal securities of any sort. Yet after the Second World War, municipal finances stabilized and private investors became increasingly comfortable with revenue bonds. In this environment authorities not only survived, but thrived.
The Pennsylvania Turnpike was pivotal in the transition. In 1938, when the Pennsylvania Turnpike Commission tried to raise funds for its proposed high-speed, limited-access highway with a public offering of revenue bonds, private investors looked askance. The project only went forward with federal financing. However, after the superhighway drew twice as many drivers in its first year as was projected to make it commercially successful, investors had a change of heart. After the war ended, the states that decided to construct tolled expressway systems by setting up authorities found it quite easy to market their revenue bonds in private capital markets. The New York Thruway Authority, which constructed the biggest and most expensive of these projects, the 535-mile express highway spanning the Empire State, encountered so much enthusiasm for its hundreds of millions of dollars’ worth of bonds that it was able to sell them for very low interest rates. The initial offering paid only 1.1 percent.28
Public Authorities When There’s Nothing to Sell
A large proportion of the new postwar public authorities operated along the same lines as these kinds of bodies had earlier. Although they now sold their bonds in private capital markets and sometimes provided novel services like tolled expressways and parking garages, they were organized on the same model that had crystallized during the New Deal era. Yet much of what cities and states wanted to build after the war could not readily be made to produce income. Examples include school buildings, which became a pressing necessity in the era of the baby boom, and government office buildings, which were needed to house an expanding public sector labor force. States and municipalities faced great challenges trying to provide these kinds of facilities given the fiscal limitations that had earlier impelled them toward public authorities: low debt caps and the difficulty of obtaining voter approval for incurring debt. But with regard to financing facilities for which users could not be charged, the traditional authority model was of little help.
The situation prompted increasingly creative efforts on the part of hard-pressed public officials to produce (or seem to produce) streams of income against which to borrow so that revenue bonds could be issued and building projects proceed. The new round of institutional innovation resulted in techniques by which public authorities could tap into tax-based revenues. These innovations eventually led to a new stage in the history of public authorities: the advent of the financing authority, and its junior partner, the moral authority bond. Not only did these new templates spread, they became major features of sub-federal public finance.
The first innovation was the building authority, based on techniques used in commercial lease financing. Building authorities, in the same way as traditional authorities, could borrow capital at lower cost than private businesses, because they could offer tax-free securities. At the same time, they could remain free of debt limits or requirements for voter approval. Traditional public authorities used the facilities they financed and constructed to produce goods and services to be sold to the public. These new authorities, by contrast, leased or rented what they built to the political jurisdictions that created them. Payment contracts were calculated to cover construction costs, interest, and a reserve fund over a fixed period, after which time title would be conveyed to the commissioning unit (although in some places, to avoid judicial objections, the ultimate transfer of title was not made explicit in the contract). Thus, it was the stream of rental payments that constituted the building authority’s future income, on the basis of which revenue bonds were floated.29
Meanwhile, public officials searching for more ways by which to take action, were busy turning the building authority into an even more flexible and powerful tool by stripping it of any specific mission. This was the financing authority, a vehicle that functioned simply to obtain low-cost capital in the tax-free municipal bond market for any public purpose involving the construction of new facilities. Financing authorities proved to be the catalyst for yet another innovation: the so-called moral obligation bond. This financial instrument was essentially a revenue bond secured not only by income from the authority that issued it, but also by some kind of vaguely worded promise to investors that if income was at any point insufficient to make scheduled payments, the general-purpose government that had commissioned the project would make up the shortfall. Since pledging the credit of a state or municipality without voter approval was illegal in most jurisdictions, such a promise could not be enforced by courts, and the bond covenants clearly stated this fact. Therefore, any such pledge was not a legal obligation. To describe the kind of commitment actually being made to investors, the credit rating agency Moody’s called it a “moral obligation.”30
In explanations of how this elaboration of the authority concept began, much has been made of the role of John Mitchell, the nationally prominent bond attorney who advised New York governor Nelson Rockefeller. Mitchell, who later served as President Richard Nixon’s attorney general and went to prison for his role in the Watergate cover-up, makes an especially good villain for those who attribute New York State’s long-term fiscal problems largely to Rockefeller’s enormous borrowing spree in the 1960s, which was facilitated by the moral authority device.31
The reality is more prosaic. As with so much of the story of the decades-long efforts to expand state capacity by evading existing statutory and constitutional controls on borrowing, this innovation occurred in an incremental, ad hoc manner, not as some conspiratorial grand plan. For example, the 1932 New York statute creating the State Bridge Authority to build the Rip Van Winkle Bridge over the Hudson specified that should any default occur, bondholders were required to wait until the end of the next legislative session before going to court. The implication was that the state might well come to the aid of the authority should it encounter financial difficulties.32 Mitchell merely took the effort to reassure investors one step further when he inserted vague language in the 1960 statute for the Housing Finance Agency (HFA) to the effect that if the agency ran into financial troubles, the governor would urge the legislature to appropriate sufficient funds to make scheduled payments to bondholders. Created as a “public benefit corporation” (the legal term in New York State for a public authority), the HFA was set up to be the financing mechanism for the state’s middle-income housing program and other construction projects that Governor Rockefeller wanted to pursue, but that the state’s voters showed little interest in supporting through bond issues. Mitchell’s stratagem was successful. Even though bond rating agencies had previously been unwilling even to assign ratings to nonguaranteed securities for housing construction, HFA bonds proved enormously popular. The HFA would go on to become a huge multipurpose state bank that by 1972 carried a debt load larger than that of the state itself.33
The Role of Capital Markets and Courts
The success of public authorities with no customers outside of government has depended on the willingness of investors and courts to accept the way these entities skirt the spirit if not the letter of the law. For example, participants in the tax-exempt bond market can hardly have believed that moral obligation bonds were actually secured by ethical sentiments. As one investment banker put it to a researcher, “If one of the state corporations defaulted on debt, it would resemble an elephant dying on the state house steps—the government would have to do something about it or suffer from the stench.” The suffering to which he referred would result from the impact on the government’s own credit rating when the investment community perceived it would not stand behind the debts of its agencies, regardless of whether it was actually responsible in a legal sense. Thus the true nature of the obligation was perceived on all sides to be practical, not moral.34
Courts, too, went along with the organizational and financial innovations involved in building and financing authorities. Rather than probe whether the bonds of these new kinds of authorities conformed to the intent of their state’s constitutional and statutory debt regulations, or inquire into the motives of those who set up the new kinds of authorities and issued their bonds, courts usually took a formal and procedural approach. Like other actors in this story, judges generally appeared sympathetic—and therefore gave the benefit of the doubt—to efforts to overcome the barriers that the existing legal framework placed in the way of badly needed public construction. For example, the Michigan Supreme Court made it obvious in the 1930s and again in the 1940s that it recognized that leasing served the same end as installment buying. The court justified its decision on the basis of a formal reading of the law, refusing to judge intentions, and saying explicitly that it found no illegality in using nominally legal means when the most obvious means to the same end were illegal.35
Courts were at times quite candid about their rationale for granting governments wide leeway in their efforts to evade legal barriers to borrowing. In 1955, New York State’s highest court affirmed the right of the City of Elmira to top up the coffers of the Elmira Parking Authority in the event that financial shortfalls threatened the authority’s ability to make scheduled payments to bondholders. In response to plaintiffs’ complaints, the court found that even though the constitution forbade political subdivisions of the state from taking responsibility for the debts of public authorities, there were no rules against “the transfer of money or property by State or city to an authority.” Thus gifts, even foreseeable ones, were declared legal. Just in case anyone missed the point, the court articulated its reasoning explicitly: “We should not strain ourselves to find illegality in such programs. The problems of a modern city can never be solved unless arrangements like these . . . are upheld, unless they are patently illegal.”36
Growing Dependence Nationally on Public Authority Financing
In the same way as new ideas for evading borrowing barriers diffused throughout the country in the first half of the 20th century, New York’s Housing Finance Agency became a national model. Only a decade and a half after the creation of the HFA, thirty states had established one or more institutions that floated bonds backed by some kind of a quasi-guarantee of support from general state revenues, in order to provide financing for a wide range of programs. Meanwhile, New York State made such liberal use of the HFA and other financing authorities for ambitious construction projects (including a huge expansion of the state university system) that by the time Rockefeller left the governorship in 1973, the debt of the state’s public authorities had ballooned to almost four times that of the Empire State itself. As time went on, these trends only accelerated. In 2004 the New York State comptroller reported that public authority debt had climbed to nine times that of the state.37
Certainly New York has been a leader in the use of public authorities as tools for confronting fiscal challenges, but its story is not anomalous. Numerous states carry a heavy load of “nonguaranteed” debt—debt that is typically generated by public authority–type institutions using bonds secured against projected revenues (a good portion of which are to be derived from government payments). As of 2002, this type of debt was higher on a per capita basis in four states (Alaska, Rhode Island, Delaware, and Massachusetts) than in New York. Nine states (Colorado, Idaho, Indiana, Iowa, Kansas, Kentucky, North Dakota, South Dakota, and Wyoming) actually rely entirely on nonguaranteed debt.38
Divergent Perspectives on Public Authorities
Numerous controversies exist with respect to public authorities. Observers disagree about their benefits and dangers, especially with regard to their ability to borrow in the tax-exempt bond market without input from the electorate, yet with the implied backing of the governments that created them. Such disagreements lead to different opinions about when and how to employ them, as well as whether and how they should be regulated.
Supporters laud authorities for their ability “to get things done.” They point to how these institutions are able to avoid the rigid budgeting, personnel, and procurement rules to which standard government agencies must conform. Most significantly, supporters highlight the ability of these agencies to generate and utilize their own sources of revenue, which liberates them from the contentious politics of taxation and public borrowing that often stymie efforts to use standard government to accomplish the task at hand. In addition, the ability to borrow against their future revenue streams for capital investments means that authorities are able to make long-range plans, which is difficult for standard agencies, funded on a yearly basis. Political scientist Jameson W. Doig, a leading expert in the field, regards the organizational structure of the public authority as potentially very effective. Many, he says, “behave in ways not unlike the well-run private corporation.” This perspective on the virtues of independence is probably most strongly held by pro-development business groups (for which, it must be noted, these structures tend to be more permeable than for other parts of civil society). In a 1986 op-ed in the Boston Globe, Harold Hestnes, a longtime leader of the Greater Boston Chamber of Commerce, praised public authorities for having built “many of the most significant public works in this nation,” an achievement he attributed to the fact that these agencies are “removed from the vicissitudes of political interference.” The basic point is that quasi-public agencies are able to accomplish tasks that their proponents take to be otherwise impossible given what they see as the American political system’s tendencies toward stasis. 39
Critics of public authorities reject these positive evaluations. They charge that the businesslike efficiency of these devices is overrated, and that whatever gains in effectiveness they do achieve come at the expense of democratic accountability. In the words of noted public administration scholar Annmarie Hauck Walsh, the public authority “involves public ownership without public policy.” Another major criticism is that reliance on public authorities fragments the power of government and commercializes the public sector. Political scientist Alberta M. Sbragia charges that public authorities have “diluted the power of general purpose governments, have insulated themselves from the electorate, and have transformed taxpayers into ratepayers subject to user fees.”40 Some commentators even allege that the public authority sector is in effect an “underground” government that poses systemic risk to the economy because of its size and the fact that it is constrained neither by the electorate nor the market.41All the critics acknowledge that standard government agencies are often slow moving and ineffectual at certain kinds of tasks, but they maintain that a far better solution would be “to attack the weakness in government rather than search for new forms of independence.”42
Public Authorities at the Federal Level
Since the early 20th century, the federal government has employed public-authority type mechanisms, most often termed government or federal corporations, to administer programs. As with these kinds of agencies at the state and local level, government corporations share core features (financial and administrative independence, plus incorporation as separate legal entities), but they vary widely one from another, reflecting the fact that they have been created on an ad hoc basis. Their history is somewhat different than that of their state and local counterparts, as the federal-level entities were originally set up to handle financial or marketing endeavors that private business seemed incapable of performing and that standard government agencies were ill-equipped to handle, rather than to circumvent legal barriers to borrowing. Also, they became less, rather than more popular in the decades after the Second World War.
Involvement with corporations was nothing new for the federal government. In the 19th century, the national government invested in private commercial corporations, such as the First and Second Banks of the United States. Also, Congress established corporate bodies to administer educational and charitable operations, such as the Smithsonian Institution. However, it was not until the early 20th century that the federal government created incorporated instrumentalities by which to engage directly in the economy. The first instance came about by accident. In 1904, when the United States purchased property in the Canal Zone from the newly formed Republic of Panama, the federal government came into possession of the Panama Railroad Company. Although owned by the government, the company was run as a self-contained enterprise. As such, it could do long-term planning, free from the uncertainty of annual congressional appropriation cycles. Nor was it subject to executive branch procurement and personnel regulations, which after all had been developed for routine administration, rather than business ventures. These conditions, combined with effective management, allowed the company to expand into a highly effective logistical support system for the building and operation of the canal. The success of the Panama Railroad Company, combined with experiments with government-owned business corporations elsewhere in the English-speaking world at this time, gave legitimacy to arguments for employing quasi-autonomous corporate agencies more widely in the United States.43
During the era of the First World War, a number of quasi-autonomous corporate agencies were set up from scratch. These were the Federal Farm Banks, Emergency Fleet Corporation, Grain Corporation, War Finance Corporation, Housing Corporation, Sugar Equalization Board, Spruce Production Corporation, and Russian Bureau, Inc. All except the Farm Banks, established to extend low-cost credit to farmers, were set up on a temporary basis to aid the war mobilization. As it turned out, quickly dissolving all of these mechanisms once hostilities ceased was difficult, because some acquired influential constituencies. The Emergency Fleet Corporation, with some modifications, survived until 1936. Meanwhile, the concept of the federally owned corporate agency able to directly intervene in the economy on behalf of public goals recommended itself to groups who believed themselves to be unfairly disadvantaged and deserving of government aid. Advocates of railroad nationalization, supporters of public power, residential mortgage lenders, and farmers’ organizations all lobbied for corporate agencies to resolve problems they faced. Congresses of the 1920s, unsympathetic to the idea of government activism in general, tended to be unresponsive to these calls, but attitudes changed when the economy slid into depression.44
To combat the deflationary slide of the Great Depression, President Hoover initiated the Federal Home Loan Banks, to make loans to residential lenders, and the Reconstruction Finance Corporation, to make loans to banks, railroads, and other businesses. These federal agencies were organized as government corporations. Many more were established during the New Deal phase of the Roosevelt administration, including a variety of credit and insurance agencies, and the most famous of all, the Tennessee Valley Authority (TVA). Most were temporary, but some have continued for decades, such as the TVA and the Federal Deposit Insurance Corporation (FDIC).45
The Second World War spurred a raft of new federal corporations, similar to, but more numerous than, the “war corporations” of the First World War. This period was the highpoint for semi-autonomous corporate agencies at the federal level, with, according to some methods of defining and counting, over one hundred in existence.46 But at this same time, pressures crested for reining in these mechanisms.
Serious resistance to the use of this administrative form began during the 1930s. For some critics, the real issue was any expansion of the federal government, and federal corporations were merely an easy target. But even many liberals were uneasy about the rapid proliferation of these devices. One issue was their extreme heterogeneity, reflecting the ad hoc manner in which they were created—some were chartered by Congress, while others incorporated in a state on the authority of the president, an official in the administration, or even an executive of a previously existing corporate agency. Moreover, while some were formed to carry out commercial functions, others seemed to have been created primarily to evade normal executive branch regulations. Most worrisome was the general lack of oversight from either the president or Congress. As a result of these anxieties, Congress passed the Government Corporation Control Act in 1945, which called for all corporate agencies to receive yearly commercial audits by the General Accounting Office and for those with state charters to get statutory approval from Congress or else be dissolved.
Government corporations lost popularity in the years after the Second World War. One reason was that the Government Corporation Control Act established more centralized controls. But since these controls were never rigorously applied, researchers tend to emphasize other factors. Scandals during the Truman administration involving the Reconstruction Finance Corporation tarnished the reputation of this major agency, and by extension, the whole class of government corporations. In addition, management theories that prioritized a more tightly integrated executive branch came to dominate the field of public administration.47 Most important, public officials discovered they could achieve even more autonomy and flexibility than public corporations provided by setting up contracting arrangements with private firms.
The military pioneered the contracting approach after positive experiences during the Second World War with government-owned, but contractor-managed, national laboratories, such as Oak Ridge and Los Alamos. Loath to lose top scientific talent after the war, the military services set up privately owned, nonprofit research organizations, such as the RAND Corporation, which were not subject to executive branch personnel rules and thus could pay salaries commensurate with the private sector. These Federally Funded Research and Development Centers (FFRDCs) became popular with the different branches of the military and eventually civilian agencies, as well. In many ways FFRDCs can be seen as the functional equivalents of government corporations, providing administrators with the ability to pursue projects over multiyear periods without the uncertainties of annual congressional appropriation cycles, to hire for and manage projects without having to cope with a rigid regulatory scheme designed for more routine administrative activities, and to launch new projects without obtaining cumbersome legislative approval.48
Despite its decline in popularity, the government corporation organizational template remains in use at the federal level. While alternatives now exist for escaping central management rules, using FFRDCs and other kinds of contracting arrangements, the government corporation still offers policymakers certain unique advantages. This is particularly the case with regard to the new institutional environment relating to the federal budget. Congressional attempts since the 1960s to cut or slow the growth of the federal budget by setting expenditure targets means that independent corporate agencies have become convenient devices for moving spending and borrowing off-budget. A good example is the creation by the George H. W. Bush administration and Congress in 1989 of the Resolution Trust Corporation (RTC) and its financing agency, the Resolution Funding Corporation (REFCORP) to deal with the losses incurred by the widespread failures of savings and loan associations (an intervention estimated to have cost $190 billion in 2008 dollars.)49
The rise of the New Public Management Movement, based on theories of “entrepreneurial” public administration, has pushed the government corporation out of the shadows. Conceptions about “third way” institutions that could function between traditional public/private boundaries gained traction in Britain in the 1980s under the influence of Margaret Thatcher and were popularized in the United States by David Osborne and Ted Gaebler in their 1992 book Reinventing Government. From this ideological perspective, the template of the congressionally chartered agency, operating outside the normal regulatory structure of federal administration and supporting itself by charging user fees for services, took on new relevance. Proponents argued that government corporations were ideal vehicles by which to deliver social and economic services more flexibly and responsively, while costing the taxpayer less.50
The Clinton administration’s effort to upgrade the administrative capabilities of the federal government was deeply influenced by these ideas. Indeed, the National Performance Review (NPR), led by Vice President Albert Gore, was commonly referred to as “Reinventing Government.” Two of the NPR’s earliest proposals were to semi-privatize the Federal Aviation Administration by creating an Air Traffic Services Corporation and to hive off the business aspects of the General Services Administration into a Real Property Management Enterprise. Other NPR suggestions for reforming specific federal agencies, while not specifying formal incorporation, called for moving them closer to the template of the government corporation in that they were to be deregulated and encouraged to generate income through commercial activities.51 Although the National Performance Review’s proposals for creating new corporate agencies did not succeed in the 1990s, the ideological climate of the early 21st century continues to favor the creation of self-funding institutions that operate outside the regulatory constraints of the executive branch. This sensibility can take surprising forms, as when the conservative Heritage Foundation adopted a trademark New Deal initiative as a desirable model with a call in 2007 “to take the [Air Traffic Control] system out of the federal budget process and make it a self-supporting entity, . . . analogous to the Tennessee Valley Authority (TVA).”52
Discussion of the Literature
Much of the scholarly writing on public authorities has been more descriptive than analytical and has examined them exclusively at either the federal level or at the state and local level. There are, however, exceptions that consider these mechanisms as a unified field and evaluate them in relation to other options governments could use to pursue policy objectives. In addition to those listed in the Further Reading section of this article, see: Emmette S. Redford, “The Scope of Public Enterprise,” chap. 26 of Emmette Redford and Charles B. Hagan, American Government and the Economy (New York: Macmillan, 1968); Jamison W. Doig, “‘If I See a Murderous Fellow Sharpening a Knife Cleverly . . .’: The Wilsonian Dichotomy and the Public Authority Tradition,” Public Administration Review 43 (July/August 1983); and Nicholas Henry, “Privatization: Government Contracting and the Public Authority,” chap. 11 of Nicholas Henry, Public Administration and Public Affairs (Upper Saddle River, NJ: Prentice-Hall, 1999).
Treatments of the public authority have changed over time. This organizational form attracted little attention from scholars before the 1930s, when it became widely employed at all levels of government. Important exceptions were a series of articles in The American Political Science Review beginning in 1914 that tracked the spread of forerunners of the public authority under the heading “Special Municipal Corporations.” Harold Archer Van Dorn’sGovernment Owned Corporations (New York: Knopf, 1926), described in detail the creation, organization, and operations of the authority-like entities established by the federal government during the era of First World War.C. Dickerman Williams and Peter R. Nehemkis Jr., “Municipal Improvements as Affected by Constitutional Debt Limitations,” Columbia Law Review 37 (February 1937)E. H. Foley Jr., director of the legal division of the PWA, such as “Revenue Financing of Public Enterprises,” Michigan Law Review 35 (November 1936)A. M. Hillhouse, Municipal Bonds: A Century of Experience (New York: Prentice-Hall, 1936)B. U. Ratchford, American State Debts (Durham, NC: Duke University Press, 1941)Lane W. Lancaster, “State Limitations on Local Indebtedness, Municipal Year Book, edited by Clarence E. Ridley and Orin F. Nolting (Washington, DC: International City Managers Association, 1936), 313–327
The fiscal crises of cities and the refinement and spread of the local-level public authority template by the Public Works Administration (PWA) during the Great Depression sparked an outpouring of scholarly discussion, much of it in legal journals. See especially, ; and articles by . For extended treatments of municipal debt and revenue bonds, see ; . Comprehensive data on constitutional and statutory debt limits in effect throughout the country as of 1936 can be found in .Oliver Peter Field, “Government Corporations: A Proposal,” Harvard Law Review 48 (March 1935)U.S. Congress, Joint Committee on Reduction of Nonessential Federal Expenditures, “Report on Government Corporations,” Senate Doc. 227, 78th Cong., 2nd sess. (1944)C. Herman Pritchett, “The Government Corporations Control Act of 1945,” American Political Science Review 40 (June 1946)
Federal-level authorities, generally termed “government corporations,” were discussed extensively in legal journals during the Depression era, when the Hoover and especially the Roosevelt administrations both turned to these mechanisms. These accounts were largely descriptions of how already-existing entities had come into being, how they functioned, and how courts had handled their ambiguous public-private character and vaguely defined relationship to different levels of government. However, these articles usually contained suggestions aimed at policymakers for improving the way these instrumentalities were designed and deployed. See, for example, . Harvey Franklin Pinney gives an enormous amount of information about the structure and legal history of government corporations in his 561-page New York University Ph.D. dissertation of 1937: “Federal Government Corporations as Instrumentalities of Government and of Administration.” For the political resistance to the increasing use of government corporations, see ; and .Horace Davis, “Borrowing Machines,” National Municipal Review 24 [June 1935])Joseph E. McLean, “Use and Abuse of Public Authorities,” National Municipal Review 43 (October 1953)Jon Magnusson “Lease-Financing by Municipal Corporations as a Way around Debt Limitations,” George Washington Law Review 25 (March 1957)William J. Quirk and Leon E. Wein, “A Short Constitutional History of Entities Commonly Known as Authorities,” Cornell Law Review 56 (April 1971): 521–597David C. Perry, “Building the City through the Back Door: The Politics of Debt, Law, and Public Infrastructure,” in Building the Public City: The Politics, Governance and Finance of Public Infrastructure, edited by David C. Perry (Thousand Oaks, CA: SAGE, 1995)Annmarie Hauck Walsh, The Public’s Business: The Politics and Practices of Government Corporations (Cambridge, MA: MIT Press, 1978)
Although early scholarly work on authorities at the state and local level often critiqued specific aspects of design and usage, these studies almost never expressed across-the-board hostility to their use. (For an atypical denunciation, see . After the Second World War, as the number of state and local agencies increased dramatically, scholarship turned more analytical and even, in some cases, sharply negative. See, for example: ; ; ; and . The best known and much admired critical overview is .Kevin R. Kosar, “Federal Government Corporations: An Overview,” CRS Report for Congress, 2011)GAO, “Government Corporations: Profiles of Existing Government Corporations,” Fact Sheet for the Ranking Minority Member, Subcommittee on Post Office and Civil Service, Committee on Government Affairs, U.S. Senate, 1995)A. Michael Froomkin, “Reinventing the Government Corporation,” University of Illinois Law Review, 1995.548 (1995): 543
Use of public authority mechanisms at the federal level in recent decades can be followed in reports by the Congressional Research Service (for example, ; the Government Accountability Office (See, ; and .John Thurston, Government Proprietary Corporations in English-Speaking Countries (Cambridge, MA: Harvard University Press, 1937)Wolfgang Friedmann, The Public Corporation: A Comparative Symposium (Toronto: Carswell, 1954)Wolfgang Friedmann and J. F. Garner, eds., Government Enterprise: A Comparative Study (New York: Columbia University Press, 1970)
Examinations of the public authority as an international phenomenon can be found in: ; ; and .
Primary sources for the study of public authorities consist chiefly of public documents published either by authorities themselves or by the government entities, such as states and the federal government, that create and oversee them. Each individual authority has its own particular records of varying duration, completeness, and accessibility. As discussed in the text (see note 7), attempts to compile data on authorities as a class have been hindered by the lack of reporting requirements and enforcement of those that exist, as well as by disagreements over definitional issues. Sadly, the U.S. Census, Census of Governments is not an authoritative source of basic information over time, as most scholars reject its classification scheme.
Abel, Albert. “The Public Corporation in the United States.” In Government Enterprise: A Comparative Study, edited by W. G. Friedmann and J. F. Garner. New York: Columbia University Press, 1970.Find this resource:
Caro, Robert A.The Power Broker: Robert Moses and the Fall of New York. New York: Knopf, 1974.Find this resource:
Doig, Jameson W.Empire on the Hudson: Entrepreneurial Vision and Political Power at the Port of New York Authority. New York: Columbia University Press, 2001.Find this resource:
Mitchell, Jerry. The American Experiment With Government Corporations. Armonk, NY: M. E. Sharpe, 1999.Find this resource:
Perry, David C. “Building the City through the Back Door: The Politics of Debt, Law, and Public Infrastructure.” In Building the Public City: The Politics, Governance, and Finance of Public Infrastructure. By David C. Perry, 202–236. Urban Affairs Annual Review 43. Thousand Oaks, CA: SAGE, 1995.Find this resource:
Quirk, William J., and Leon E. Wein. “A Short Constitutional History of Entities Commonly Known as Authorities.” Cornell Law Review 56.4 (April 1971): 521–597.Find this resource:
Radford, Gail. The Rise of the Public Authority: Statebuilding and Economic Development in Twentieth-Century America. Chicago: University of Chicago Press, 2013.Find this resource:
Sbragia, Alberta M.Debt Wish: Entrepreneurial Cities, U.S. Federalism, and Economic Development. Pittsburgh, PA: University of Pittsburgh Press, 1996. 14–15.Find this resource:
Seidman, Harold. “Government-sponsored Enterprise in the United States.” In The New Political Economy: The Public Use of the Private Sector. Edited by Bruce L. R. Smith. New York: Wiley, 1975.Find this resource:
Smith, Robert G.Public Authorities, Special Districts and Local Government. Washington, DC: National Association of Counties, 1964.Find this resource:
Walsh, Annmarie Hauck. The Public’s Business: The Politics and Practices of Government Corporations. Cambridge, MA: MIT Press, 1980. Originally published in 1978.Find this resource:
(1.) Robert Gerwig, “Public Authorities in the United States,” Law and Contemporary Problems 20.4 (September 1961): 602.
(2.) David C. Perry, “Building the City through the Back Door: The Politics of Debt, Law, and Public Infrastructure,” in Building the Public City: The Politics, Governance, and Finance of Public Infrastructure, by David C. Perry, Urban Affairs Annual Review 43 (Thousand Oaks, CA: SAGE, 1995), 202–236; and Kenneth W. Bond, “Conduit Financing,” New York State Bar Association Government, Law and Policy Journal 11.2 (Fall 2009): 68–74.
(4.) Peter Hendee Brown, America’s Waterfront Revival: Port Authorities and Urban Redevelopment (Philadelphia: University of Pennsylvania Press, 2009), chap. 2; Hillsborough County Port District, Florida, “Comprehensive Annual Financial Report of the Tampa Port Authority, Fiscal Year Ended September 30, 2008,” iv. (accessed 9/28/2009).
(5.) Springfield Parking Authority (accessed 1/31/2010). Infrastructure Management Group, Assessment Report on the City of Springfield Parking System (August 2005), 9, 12, 14, 18, 43. (accessed 1/31/2010).
(6.) Robert A. Caro, The Power Broker: Robert Moses and the Fall of New York (New York: Knopf, 1974); Robert A. Caro, “The City-Shaper,” New Yorker, January 5, 1998, 40.
(7.) For estimates of total number, see Nicholas Henry, Public Administration and Public Affairs (Upper Saddle River, NJ: Prentice-Hall, 1999), 373. For definitional issues, see Annmarie Hauck Walsh, The Public’s Business: The Politics and Practices of Government Corporations (Cambridge, MA: MIT Press, 1980), 5–6, 353–372, 373, n.1; and Jerry Mitchell, “The Policy Activities of Public Authorities,” Policy Studies Journal 18 (Summer 1990), 928–942. The U.S. Census, Census of Governments is not a definitive source, as it lumps together special districts with public authorities. While the two share certain characteristics, such as structural independence from elected officials (plus a common history), most scholars differentiate between them—the basic distinction being that special districts are governed by elected boards and have the power to tax, whereas public authorities are governed by appointed boards and have no taxing power. For efforts to identify all public authorities in New York, see Office of the State Comptroller, Public Authorities in New York State: Accelerating Momentum to Achieve Reform (Albany, NY: Office of Budget and Policy Analysis, February 2005), 7.
(8.) Ronald C. Moe and Kevin R. Kosar, Federal Government Corporations: An Overview, (Washington, DC: Congressional Research Service, 2006), 6.
(9.) Unpublished Census Bureau data for 1949 cited in J. Richard Aronson and John L. Hilley, Financing State and Local Governments (Washington, DC: Brookings Institution, 1986), 251. U.S. Department of Interior, Census Office, 2002 Census of Governments, vol. 4, no. 5: Government Finances (Washington, DC: GPO, 2005), Table 13, p.15. After 2002, the Census Bureau no longer distinguished between debt that was “guaranteed” and “non-guaranteed,” so no later figures are available. Dollar value adjustments were done based on Bureau of Economic Analysis, U.S. Department of Commerce, National Income and Product Accounts Tables, Table 1.1.4, Price Indexes for Gross Domestic Product (options selected: annual series and all years), available at the website for the Bureau of Economic Analysis (accessed 3/5/2011).
(10.) Richard M. Abrams, “Business and Government,” in Jack P. Greene, ed., Encyclopedia of American Political History (New York: Scribners, 1984), 1:132–133; Oliver Field, “Government Corporations: A Proposal,” Harvard Law Review 48 (March 1935): 775–776.
(11.) Ballard C. Campbell, “Tax Revolts and Political Change,” Journal of Policy History 10.1 (1998): 156–161; C. Dickerman Williams and Peter R. Nehemkis Jr., “Municipal Improvements as Affected by Constitutional Debt Limitations,” Columbia Law Review 37 (February 1937), 187; A. M. Hillhouse, Municipal Bonds: A Century of Experience (New York: Prentice-Hall, 1936), 143–199; Lane W. Lancaster, “State Limitations on Local Indebtedness,” The Municipal Year Book, ed. Clarence E. Ridley and Orin F. Nolting (Chicago, 1936), 319–324; and John L. Bowers Jr., “Limitations on Municipal Indebtedness,” Vanderbilt Law Review 5 (1951–1952): 37–56.
(12.) Robin L. Einhorn, Property Rules: Political Economy in Chicago, 1833–1872 (Chicago: University of Chicago Press, 1991), 15–19, 104–143; Roger D. Simon, The City-Building Process: Housing and Services in New Milwaukee Neighborhoods, 1880–1910 (Philadelphia: American Philosophical Society, 1996), 24.
(13.) Sarah S. Elkind, “Building a Better Jungle: Anti-Urban Sentiment, Public Works, and Political Reform in American Cites, 1880–1930,” Journal of Urban History 24 (November 1997): 55.
(14.) Frederic H. Guild, “Special Corporations,” American Political Science Review 12 (November 1918): 681.
(15.) John C. Bollens, Special District Government in the United States (Berkeley: University of California Press, 1957); Paul Studenski, The Government of Metropolitan Areas in the United States (New York: National Municipal League, 1930), chap. 14; and Kathryn A. Foster, The Political Economy of Special-Purpose Government (Washington, DC: Georgetown University Press, 1997), 15–17.
(16.) Winston v. Spokane, 12 Wash. 524 (1895); U.S. Federal Emergency Administration of Public Works, Revenue Bond Financing by Political Subdivisions: Its Origin, Scope, and Growth in the United States (Washington, DC: U.S. Government Printing Office, 1936), 3–4; Lawrence L. Durisch, “Publicly Owned Utilities and the Problem of Municipal Debt Limits,” Michigan Law Review 31 (1932–1933): 506; John F. Fowler, Jr.Revenue Bonds: The Nature, Uses and Distribution of Fully Self-Liquidating Public Loans (New York: Harper & Bros., 1938), 21–22; and Laurence S. Knappen, Revenue Bonds and the Investor (New York: Prentice-Hall, 1939), 8–10.
(17.) Van Eaton v. Town of Sidney, 211 Iowa 986, 993 (1930).
(18.) James Stuart Olson, Herbert Hoover and the Reconstruction Finance Corporation (Ames: Iowa State University Press, 1977), 62–73; quote from William Starr Myers and Walter H. Newton, The Hoover Administration: A Documented Narrative (New York: Scribners, 1936), 209.
(19.) Emergency Relief and Construction Act, 47 Stat. 709 (1932).
(20.) J. Franklin Ebersole, “One Year of the Reconstruction Finance Corporation,” Quarterly Journal of Economics 47 (May 1933): 482; Secretary of the Treasury, Final Report of the Reconstruction Finance Corporation (Washington, DC: U.S. Government Printing Office, 1959), 268–269, table PA-2; Olson, Herbert Hoover and the Reconstruction Finance Corporation, 78; Paul Y. Anderson, “Buying California for Hoover,” Nation, October 26, 1932, 392–393.
(21.) Robert G. Smith, Ad Hoc Governments: Special Purpose Transportation Authorities in Britain and the United States (Beverly Hills, CA: SAGE, 1974), 109; Paul Studenski and Herman E. Krooss, Financial History of the United States: Fiscal, Monetary, Banking, and Tariff, Including Financial Administration and State and Local Finance (New York: McGraw Hill, 1952), 433. Revenue-bond statistics computed from Lawrence S. Knappen, Revenue Bonds and the Investor (New York: Prentice-Hall, 1939), 279–286.
(22.) Ballard C. Campbell, The Growth of American Government: Governance from the Cleveland Era to the Present (Bloomington: Indiana University Press, 1995), 86–87; Paul Betters, Recent Federal-City Relations (Washington, DC: United States Conference of Mayors, 1936), 8; and Lancaster, “State Limitations on Local Indebtedness,” 319–324.
(23.) The California Toll Bridge Authority was created in 1929 and authorized to issue revenue bonds. The Reconstruction Finance Corporation (RFC) financed the Bay Bridge project by purchasing $71 million worth of those bonds. 1929 Cal. Stat. chaps. 762 and 763; California Legislature, Joint Legislative Budget Committee, Financial History of the San Francisco–Oakland Bay Bridge (Sacramento, CA: Senate of the State of California, 1953), 12–16, 71–84. The Metropolitan Aqueduct was constructed by the Metropolitan Water District of Southern California, which was authorized to tax and borrow in 1927. The RFC purchased $148,500,000 worth of its bonds. 1927 Cal. Stat. chap. 429; Norris Hundley Jr., The Great Thirst: Californians and Water, 1770s–1990s (Berkeley: University of California Press, 1992), 215–232; Wylie Kilpatrick, “Federal Assistance to Municipal Recovery,” National Municipal Review 26 (July 1937), 339.
(24.) Knappen, Revenue Bonds and the Investor, appendix A, 279–286; J. Kerwin Williams, Grants-in-Aid under the Public Works Administration (New York: Columbia University Press, 1939), 38–39. It might be argued that some of the 1933 laws were passed in response to the New Deal public works program that took over administration of the Emergency Relief and Construction Act (ERCA) in mid-June of that year. Harold Ickes, who administered the program, took a more activist approach to helping states pass laws that permitted revenue-based borrowing than Hoover’s public works directors had. But considering the start-up time for a new federal agency under a new presidential administration and the fact that most state legislatures met early in the year, most of the new state laws passed in 1933 should probably be credited primarily to the impetus of ERCA.
(25.) The National Industrial Recovery Act of 1933 allowed grants of 30 percent. 48 Stat. 195, Title II–Section 203(a). When the Emergency Relief and Construction Act of 1935, which continued funding for the agency, failed to specify a ceiling for grants, the president raised the limit to 45 percent. Jack F. Isakoff, The Public Works Administration (Urbana: University of Illinois Press, 1938), 88–93. The RFC began by setting minimum interest rates at 5.5 percent, eventually settling at 5 percent for most loans. The Public Works Administration (PWA) charged 4 percent. Olson, Herbert Hoover and the Reconstruction Finance Corporation, 79; U.S. Federal Emergency Administration of Public Works, Revenue Bond Financing by Political Subdivisions, 20; Winston P. Wilson, Harvey Couch: The Master Builder (Nashville: Broadman, 1947), 94; Linda J. Lear, Harold L. Ickes: The Aggressive Progressive, 1874–1933 (New York: Garland, 1981); Harvey Couch, Financing the Construction of Self-Liquidating Public Projects through the Reconstruction Finance Corporation (Washington, DC: U.S. GPO, 1932); Harold L. Ickes, Back to Work: The Story of the PWA (New York: Macmillan, 1935), 224. The number of states that adopted enabling laws is computed from Knappen, Revenue Bonds and the Investor, appendix A, 279–286.
(26.) Quotes from Smith, Ad Hoc Governments, 108.
(27.) Jameson W. Doig, Empire on the Hudson: Entrepreneurial Vision and Political Power at the Port of New York Authority (New York: Columbia University Press, 2001), chapter 7. Roosevelt quote from Jameson W. Doig, “Joining New York City to the Greater Metropolis: The Port Authority as Visionary, Target of Opportunity, and Opportunist,” in Landscape of Modernity: New York City, 1900–1940, ed. David Ward and Olivier Zunz (Baltimore: Johns Hopkins University Press, 1992), 83. Under aggressive leadership that adeptly used proceeds from projects the agency controlled to finance others, the Port Authority of New York (later renamed the Port Authority of New York and New Jersey) expanded significantly as time went on. It took over or built from scratch a large amount of the region’s major infrastructure, including the Holland and Lincoln Tunnels, the region’s three major airports (LaGuardia, Kennedy, and Newark), major truck terminals in the two states, and the World Trade Center. Jerry Mitchell, The American Experiment with Government Corporations (Armonk, NY: M. E. Sharpe), 37.
(28.) Dan Cupper, The Pennsylvania Turnpike: A History (Lebanon, PA: Applied Arts, 1990), 6–9, 22–24; Phil Patton, “A Quick Way from Here to There Was Also a Frolic,” Smithsonian 21 (October 1990); Robert G. Smith, Ad Hoc Governments: Special Purpose Transportation Authorities in Britain and the United States (Beverly Hills, CA: SAGE, 1974), 121; Council of State Governments, Public Authorities in the States: A Report to the Governors’ Conference (Chicago: Council of State Governments, 1953), 30–31; Michael R. Fein, Paving the Way: New York Road Building and the American State, 1880–1956 (Lawrence: University Press of Kansas, 2008), 205, chap. 5; and U.S. Department of Transportation, America’s Highways, 1776–1976: A History of the Federal-Aid Program (Washington, DC: GPO, 1976), 472–474.
(29.) Walsh, The Public’s Business, 121–122; and Nathanial Stone Preston, “The Use and Control of Public Authorities in American State and Local Government” (PhD diss., Princeton University, 1960), 61.
(30.) Janice C. Griffith, “‘Moral Obligation’ Bonds: Illusion or Security?” Urban Lawyer 8 (1976): 54–93; and Walsh, The Public’s Business, 132, 166.
(31.) “John N. Mitchell Dies at 75; Major Figure in Watergate,” New York Times, November 10, 1988. Section titles such as “Nelson Rockefeller: The Stunting of Fiscal Viability and the Rise of Moral Obligation Bonds” make clear the viewpoint of Peter D. McClelland and Alan L. Magdovitz in Crisis in the Making: The Political Economy of New York State Since 1945 (New York: Cambridge University Press, 1981), 225.
(32.) Laws of New York 1932, chap. 548, sec. 4. Moreland Act Commission on the Urban Development Corporation and Other State Financing Agencies, Restoring Credit and Confidence (Albany, NY: Moreland Act Commission, 1976), 86. See also, B.U. Ratchford, American State Debts (Durham, NC: Duke University Press, 1941), 517–521.
(33.) The New York State Limited Profit Housing Companies Act (1955) is commonly known as Mitchell-Lama, after its sponsors, Senator MacNeil Mitchell and Assemblyman Alfred J. Lama. By 1972 HFA debt was $ 3.8 billion compared to the state’s full-faith and credit debt of $3.4 billion. Figures from James E. Underwood and William J. Daniels, Governor Rockefeller in New York: The Apex of Pragmatic Liberalism in the United States (Westport, CT: Greenwood, 1982), table 6.9, p. 174, and table 6.6, p. 168. McClelland and Magdovitz, Crisis in the Making, 156–161, 199–202, 233–234; and William K. Reilly and S. J. Schulman, “The State Urban Development Corporation: New York’s Innovation,” Urban Lawyer 1 (1969): 135. For the section of the statute that makes this quasi guarantee: Laws of New York, 1960, chap. 671, sec. 346 (d). Walsh, The Public’s Business, 72–77, 129–130.
(34.) Annmarie Hauck Walsh, “Public Authorities and the Shape of Decision Making,” in Urban Politics: New York Style, ed. Jewel Bellush and Dick Netzer (Armonk, NY: M. E. Sharpe, 1990), 204.
(35.) Bacon v. City of Detroit, 282 Mich. 150 (1937), and Walinske v. Detroit-Wayne Joint Bldg. Authority, 325 Mich. 562 (1949). Joseph F. Gricar, “Municipal Corporations: Circumventing Municipal Debt Limitations,” Michigan Law Review 48 (May 1950): 1019–1020. Also see, Eugene C. Lee, “Use of Lease-Purchase Agreements to Finance Capital Improvements,” Municipal Finance 24 (November 1952): 78–81; and Jon Magnusson, “Lease Financing by Municipal Corporations As a Way Around Debt Limitation,” George Washington Law Review 25 (March 1957).
(36.) Comereski v. City of Elmira, 308 NY 248 (1955), 254; and William J. Quirk and Leon E. Wein, “A Short Constitutional History of Entities Commonly Known as Authorities,” Cornell Law Review 56 (April 1971): 583–585.
(37.) Walsh, The Public’s Business, 133. In 1973 the combined debt of all New York State public authorities was $13.8 billion compared to the state’s full-faith and credit debt of $3.5 billion. Figures from Underwood and Daniels, Governor Rockefeller in New York, table 6.5, p. 166, and table 6.6, p. 168, and Alan G. Hevesi, Public Authority Reform: Reining in New York’s Secret Government (New York: Office of the State Comptroller, February 2004), 14.
(38.) Gail Radford, The Rise of the Public Authority: Statebuilding and Economic Development in Twentieth-Century America (Chicago: University of Chicago Press, 2013), 150–152; Council of State Governments, The Book of the States, vol. 38 (Lexington, KY: Council of State Governments, 2006), 400. After 2002, the Census Bureau no longer distinguished between debt that was “guaranteed” and “non-guaranteed,” so no later figures are available.
(39.) Henry, Public Administration and Public Affairs, 396; Jameson W. Doig, “ ‘If I See a Murderous Fellow Sharpening a Knife Cleverly . . . ’: The Wilsonian Dichotomy and the Public Authority Tradition,” Public Administration Review 43 (July–August 1983): 295, 297; and Harold Hestnes, “Public Authorities: Should the State Take Away Their Power?” Boston Globe, November 7, 1986, 28, quoted in Jerry Mitchell, The American Experiment with Government Corporations (Armonk, NY: M. E. Sharpe, 1999), 65.
(40.) Walsh, The Public’s Business, 3; and Alberta M. Sbragia, Debt Wish: Entrepreneurial Cities, U.S. Federalism, and Economic Development (Pittsburgh, PA: University of Pittsburgh Press, 1996), 14–15.
(41.) For example, James T. Bennett and Thomas J. DiLorenzo, Underground Government: The Off-Budget Public Sector (Washington, DC: Cato Institute, 1983); Donald Axelrod, Shadow Government: The Hidden World of Public Authorities—And How They Control Over $1 Trillion of Your Money (New York: John Wiley, 1992); Thomas H. Stanton, A State of Risk: Will Government-Sponsored Enterprises Be the Next Financial Crisis? (New York: HarperBusiness, 1991); Bert Ely, The Farm Credit System: Reckless Past, Doubtful Future (Alexandria, VA: Ely, 1999); Diana B. Henriques, The Machinery of Greed: Public Authority Abuse and What to Do about It (Lexington, MA: D.C. Heath, 1986); and Peter J. Wallison, ed., Serving Two Masters, But Out of Control: Fannie Mae and Freddie Mac (Washington, DC: AEI Press, 2001).
(42.) Emmette S. Redford and Charles B. Hagan, American Government and the Economy (New York: Macmillan, 1968), 623.
(43.) Albert Abel, “The Public Corporation in the United States,” in Government Enterprise: A Comparative Study, ed., W. G. Friedmann (New York: Columbia University Press, 1970), 182. Harold Archer Van Dorn, Government Owned Corporations (New York: Knopf, 1926).
(44.) Radford, The Rise of the Public Authority, chaps. 1–2.
(45.) John McDiarmid, Government Corporations and Federal Funds (Chicago: University of Chicago Press, 1938).
(46.) General Accounting Office, Reference Manual of Government Corporations, as of June 30, 1945, Senate Doc 86, 79th Cong, 1st sess. (1945).
(47.) Abel, “The Public Corporation in the United States,” 228.
(48.) Daniel Guttman, “Public Purpose and Private Service: The Twentieth Century Culture of Contracting Out and the Evolving Law of Diffused Sovereignty,” Administrative Law Review 52 (2000): 868–872; U.S. Congress, Office of Technology Assessment, A History of the Department of Defense Federally Funded Research and Development Centers (Washington, June 1995), 16, 41–44; Alex Abella, Soldiers of Reason: The RAND Corporation and the Rise of the American Empire (Orlando, FL: Harcourt, Inc., 2008), 184–187, 202–212.
(49.) Harold Seidman, “The Quasi World of the Federal Government,” The Brookings Review 6 (Summer 1988): 24; Harold Seidman, Politics, Position and Power: The Dynamics of Federal Organization, 5th ed. (New York: Oxford, 1998), 113–116; N. Eric Weiss, Government Interventions in Financial Markets: Economic and Historic Analysis of Subprime Mortgage Options (Washington, DC: Congressional Research Service, April 18, 2008), 8; Joseph Stiglitz and Bruce Greenwald, Towards a New Paradigm in Monetary Economics (Cambridge, UK: Cambridge University Press, 2003), 239–244. A. Michael Froomkin refers to REFCORP as “little more than an accounting trick” in Froomkin, “Reinventing the Government Corporation,” University of Illinois Law Review 1995.3: 543.
(50.) Ronald C. Moe, “The Emerging Federal Quasi Government: Issues of Management and Accountability,” Public Administration Review 61 (May/June 2001): 290–293; and Nancy J. Knauer, “Reinventing Government: The Promise of Institutional Choice and Government Created Charitable Organizations,” New York School of Law Review 42 (1997): 946, 954–958.
(51.) Ronald C. Moe, “The ‘Reinventing Government’ Exercise: Misinterpreting the Problem, Misjudging the Consequences,” Public Administration Review 54 (March/April 1994): 111–122; Albert Gore, From Red Tape to Results, Creating a Government That Works Better & Costs Less: Report of the National Performance Review (Washington, DC: The Review, 1993), 61. Other agencies identified by the National Performance Review (NPR) as appropriate for transformation into deregulated, self-funding operations include the U.S. Patent and Trademark Office, U.S. Mint, St. Lawrence Seaway Development Corporation, Department of Defense Commissary Agency, and Seafood Inspection Program. Alasdair Roberts, “Performance-Based Organizations: Assessing the Gore Plan,” Public Administration Review 57 (November/December 1997): 465–478. U.S. General Accounting Office, Government Corporations: Profiles of Recent Proposals, GAO/66D-95-57FS (Washington, 1995).
(52.) Robert W. Poole, "The Urgent Need to Reform the FAA's Traffic Control System,"Backgrounder #2007 (The Heritage Foundation, February 20, 2006), 6, (accessed July 6, 2011).