Providence, R.I. bond deal: capital improvement or budget tactic?

Issuing municipal bonds for capital improvements of government buildings may seem like a routine use of debt. However, as Michael Corkery of The Wall Street Journal reports, sometimes the proceeds are used for very different purposes. Providence, Rhode Island issued a $35 million “green monetization”bond, $30 million of which was used to balance the city’s budget. The remaining $5 million was spent on upgrades to Providence City Hall and the Department of Public Works. The city needed and received state permission to issue the bond. Revenue director, Rosemary Gallogly, warned Providence officials that this green project was not so much a capital improvement deal as it was a clear case of deficit financing. They city got a pass because of other measures they had taken to balance their budget.

Other cities have recently done the same. Newark, N.J. Faced with a large deficit the city had to decide among service cuts, property tax hikes, or issuing debt. Newark pursued a 20 year lease-back of 16 city properties including the Courthouse, police and fire headquarters and Newark Symphony Hall. The deal means the city gave control of the buildings to Essex County Improvement Authority, which then issued a $73 million bond for improvements. Of that total, $40 million went to Newark’s general fund, $22 million went to building upgrades, and $11 million to paying down existing debt.

The cities are upfront about their “green monetization” intentions: balance city budgets while avoiding tax hikes. At least for now as a bond is taxation deferred.