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Shadow Government: The Hidden World of Public Authorities - And How They Control $1 Trillion of Your Money.

Donald Axelrod provides readers who are unfamiliar with the structure and reasoning behind public authorities with enough alarming tales that, after reading this book, they fear the power of these authorities and only see the negative side of the approximately 35,000 of these autonomous agencies that exist across the country today. He delves into the reasons given the public for the formation of the authorities versus the actual results that they achieved, in most cases at a tremendous level of cost. He frightens the reader with the dollar amounts of debt that they have issued, their tenuous ability to pay and the liability to the taxpayer should these authorities fail to generate the projected revenue streams. Compounding the concern are the cases of mismanagement and excessive spending at many public authorities cited.

The book begins with an explanation of how some of the largest of the public authorities began. The first wave of public authorities occurred during the Great Depression. Many authorities, or "government corporations," rolled out during this time, including the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, the Government National Mortgage Association and the Tennessee Valley Authority.

Nelson Rockefeller, the governor of New York from 1959 to 1974, was instrumental in the formation of several large, "off-budget" public authorities that had the power to issue debt and, therefore, provide the services that the people of New York needed but had defeated in several voter referendums that proposed to provide these services or facilities through increased taxation. Other state and local governments got in the loop and saw the opportunity to provide the needs by a method that would bypass the referendum. The "moral obligation" bond became the facility that allowed these public authorities to issue massive amounts of debt with no requirement by the state or local governments to assist in the debt payment should the authority's revenue fall short of the required amount.

Authority boards have the power to run their financial affairs, approve their budgets, control the hiring and firing of staff, and establish compensation. Axelrod states, "The use of public authorities signals a breakdown in the traditional political, fiscal, administrative and legal structures of state and local governments. . . . |Public authorities are~, in most cases, safely outside the reach of voters and elected officials. This means that ordinary citizens have little say about governmental functions that affect them most."

Axelrod defines the beneficiaries of the public authorities to be the underwriters, law firms, financial advisers and banks, as well as contractors, developers, and engineering and architectural firms; the loser is the general public. The solution he proposes is constitutional: removing the referendum requirement for debt issuance, as some states have done. The elected officials would then be able to provide for their government's needs without hiding behind off-budget or debt issuing authorities. Citizens would have control and recourse through the election of their officials.

I found the book to be somewhat confusing, and I do not believe that it would take me 300 pages to present this topic. Many examples are used throughout and often seem to repeat or overlap from chapter to chapter. Example agencies most often used are those of the federal government and of the states of New York, Massachusetts, Texas and California. The section on the "Authority Sweepstakes: Winners and Losers" contains substantial information on the high cost often incurred with debt issuance and the pitfalls to avoid. The points identified, however, are not unique to public authorities but can be applied to government debt in general.

The book concentrates on the negative aspects of several of the larger, better-known agencies, slighting the positive results that these agencies provide, the services and facilities that these organizations have brought to the public. The government finance official will find this book exhaustively pessimistic with little constructive thought; while the anti-government, status-quo citizen will find additional ammunition to use against government, even though the public derived major benefits and the mission of the authority was accomplished.

Shadow Government is available for $24.95 from John Wiley & Sons, 1 Wiley Drive, Somerset, NJ 08875 (800/225-5945).
COPYRIGHT 1993 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Blume, Jessica L.
Publication:Government Finance Review
Article Type:Book Review
Date:Aug 1, 1993
Words:685
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