'Binding' Taxpayers to Detroit

It’s a truism that a current legislature cannot bind future legislatures to follow through on its own policy and spending preferences. For example, this year’s House and Senate may vote to raise taxes and provide a chicken in every pot, but nothing prevents politicians elected in future years from cutting taxes and decreeing, “No more chicken soup for you!”

From the start, this “binding future legislatures” challenge has been implicit in Gov. Rick Snyder’s proposal for the state to provide a $350 million partial bailout for Detroit over 20 years. The current Legislature could appropriate one or two annual installments of $17.5 million, but the new Legislature elected next November, or a subsequent one, could just as easily declare “the heck with that” and appropriate nothing at all.

There is one way to get around this, but it involves making an already unpopular bailout proposal even more politically toxic to voters outside the city: Debt and borrowing. The state could simply borrow $350 million and give it to the city right now, pledging to repay lenders from a specified revenue stream.

What has been implicit recently became explicit in recent news reports. According to the April 17 edition of MIRS News, Gov. Rick Snyder said:

“One of the options we could look at is essentially looking at tobacco settlement dollars to securitize a bond issue. But there are other ways to look at. So again, that's going to be part of the open discussion we'll have is the best ways to finance something like this.”

“Securitize” is political bond broker-speak for “borrow.” When politicians specify “tobacco settlement dollars” as the funding source for some pet project, it is usually intended to make it appear as magic money painlessly flowing out the door, but that is not the case: Every dollar delivered to Detroit from this revenue stream is a dollar made unavailable for other vital state needs, like filling potholes for example.