Posted on 09/09/2011 6:55:24 AM PDT by reaganaut1
Cities and states have been firing workers and raising taxes to balance the books. But for some of the shakiest cities, those moves aren't enough.
Enter Class Green Capital Partners, a New York financial adviser to municipalities. Class Green has been helping cities to essentially take out mortgages on their public buildings and use many of the proceeds to plug their budget shortfalls.
Here is the twist: A portion of the bond proceeds go to improve energy efficiency in the buildings, which are meant to generate savings for the city.
That "green" element also helps some cities deal with state rules that restrict selling public buildings or borrowing money expressly to fill deficits.
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But few strategies are as unconventional as Class Green's, which has been employed in Newark, N.J. and Providence, R.I. The firm says it is in discussions with a handful of other cities about similar deals.
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But critics contend that the "green" element disguises the primary purpose of the deals: deficit financing.
In Providence, the chairman of the city's building authority resigned in protest over a $35 million Class Green borrowing deal. "I am not a Boy Scout, but this is just ridiculous,'' says Lloyd Granoff, who resigned in late March after 25 years on the board. "It has nothing to do with green energy. It is simply a way to cover up a budget deficit."
Rhode Island cities, like Providence, are required to obtain state approval to borrow money to fill budget deficits. Rosemary Booth Gallogly, the state's revenue director, said she warned Providence officials that she considered the $35 million deal a clear case of deficit financing, despite the city's claim that it was something different.
(Excerpt) Read more at online.wsj.com ...
Mortgaging assets to pay current expenses and take on new expenses—fixing up buildings to be “green”—of dubious value and return. This is the classic case of an enterprise that is one step away from bankruptcy.
I think if a city is serious about it’s debt problem, this could be a good move, because older city buildings are horrendous energy wasters.
But this is a disaster waiting to happen for cities not committed to really solving their problem.
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