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24, 2011
State Budget Shortfalls ‐ NOT the Worker’s Problem
There is an old saying, if you borrow a couple of hundred thousand, it is your problem, if you borrow
a couple of million it is the loaner’s problem. I called the NY State Dormitory Authority (NYDA) and the
Office of Mental Health (NYOMH) and asked them a simple question: how much of their budget goes to
paying the bonds raised to build the various NYOMH buildings across the state. The responses I got
ranged from “we don’t have that information” to “why are you asking” all the way to “that is
confidential information available through the governor’s office only.”
Here is why I was asking: The Dormitory Authority had held the title to the 850‐acre Harlem Valley
Psyche Center (HVP) because of outstanding bonds, all $16 million of them, which had been used to
finance capital projects at the psychiatric center. The NYDA sold it all for $3.95 mil to Dover Knolls
Development Company. So, what did they do with the original $16 million construction and
refurbishment bonds? Did they pay them off? Nope. Did they defease them? Nope. They simply moved
them from an NYDA line item in the State budget to “another line item” somewhere. Taxpayers are still
paying off those bonds. When we were 1st looking at changing the HVP in the early ‘90s to private use,
the problem was the bonds, big fat bonds, Michael Milken and Ivan Boesky bonds paying “investors”
(bond holders) 22% and 24% a year. Yes, you read that right, almost a quarter of the original investment
paid, every year, to Wall Street bondholders.
Now, let’s not make a big deal out of one psyche center. Never mind that there are 29 such centers
in NY State alone. Let’s ask where the other NY State junk bonds are while taxpayers lay out horrendous
interest. Airports, tunnels, bridges, highways, power grids, schools – all sorts of bond issues were
arranged by Milken and Boesky for mega‐interest payments. Across the nation it was happening
everywhere. I have no doubt Wisconsin has these same higher‐than‐normal bonds in its budget.
Barrons magazine estimates that revenue bonds comprise 65% of all state debt, up from 40% in 1975.
I doubt any journalist has ever done due diligence in rooting them out. Why is this a difficult task?
Because the politicians want to get re‐elected and it is hard to tell the taxpayers to tighten their belts,
pay more tax, when your cronies and previous politicians have so poorly run NY State’s finances that
taxpayers cough up at least, $2.5 billion a year in sky‐high interest. If the interest rate was closer to
commercial rates, the bonds for NY State could only cost $320 million. And what is the state’s deficit
projection? $4+ billion? Seems to me that is reason enough for someone to look into regaining some
$2 billion a year.
When Argentina was bankrupt and could not pay its international loans, the government there
defeased them overnight. In short they cancelled them, passed a law shredding the contracts, and said,
“You money lenders have made enough profit on our backs.” What happened? Outrage in Washington
and Europe. Action? War? Sanctions? None. New loans were made in weeks at 1% and 2% interest.
Argentina balanced their national budget within 3 years and that country is now booming. And they are
still playing hardball with outstanding loans at 8%, wanting 2%! Why not? The country of Argentina is
not leaving anytime soon. Simply put, they cannot default, so why pay higher‐than‐usual rates?
I have a suggestion to states’ governors: stop siding with the fat cats in Wall Street, stop being
“honorable” while your predecessors sold the farm from beneath you. Stop blaming the civil servants
you hired, the ones you have an honorable contract with, the ones who have paid into pension funds
you have raided for decades. Try doing the really honorable thing: defease the bonds, to hell with
bondholders who have profiteered for decades, balance the states’ budgets and bring the economy
back.