In my last post, I came up upon an entity called the Commonwealth Financing Authority (CFA). I hadn’t heard of this little corner of the Pennsylvania repressive state apparatus, so I was curious to keep exploring.
CFA’s the kind of entity, like the Metro Transit Authority in New York City, that could apply for a Municipal Liquidity facility loan. It issues all kinds of bonds on behalf of the state, including revenue bonds meant for specific purposes like transportation.
The website describes it in the following terms:
The Commonwealth Financing Authority (CFA) was established in 2004 as an independent agency of the Department of Community and Economic Development (DCED) to administer Pennsylvania's economic stimulus packages. The CFA holds fiduciary responsibility over the funding of programs and investments in Pennsylvania's economic growth.
The CFA focuses specifically on stimulus packages and growth. Plus it issues bonds for PlanCon, a set of which were rated A1 by Moody’s in 2018. Looking good!
The extent that the MLF could be thought of as stimulus in the crisis and, if we were to pitch these funds as being specifically for growing the green economy, the CFA could be a good fit. So let’s take a look at it.
Here’s the description again, this time talking about its composition:
Unique among state agencies in structure and scope, the CFA consists of seven Board members: four legislative appointees and the secretaries of DCED, the Office of the Budget and Department of Banking and Securities. Project approval requires five affirmative votes, four of which must come from legislative appointees.
The board includes government officials and capitalists, notably Michael Karp, a West Philly real estate investor, founder of Belmont Charter network, former Philly Board of Education member, and Secretary/Treasurer of the Pennsylvania Intergovernmental Cooperation Authority (that oversees Philly’s budget approval). Karp is a fascinating figure sitting at the intersection of real estate and education policy. I’ll probably do a post on him soon.
The last set of published minutes from the CFA are from November 2019. The meeting was less than ten minutes long but approved at least 100 projects that got financed anywhere from $50,000 to $3 million, appearing to add up to billions of dollars. Many of these projects are for small townships but some appear to be private sector.
Karp was an active member during this meeting, but a member of the public named Paul Wentzel motioned to approve most of the projects, which are multimodal transportation projects, Gaming and Economic Development Tourism Fund (GETDF) projects, and First Industries Projects.
Wentzel is another interesting character working for another apparatus I didn’t know about. (It’s apparatuses all the way down when it comes to school funding.)
He’s the Senior Legislative Director for Pennsylvania’s Department of Banking and Securities. Yet another entity I’d like to look into. Their logo is really something.
A fiscal mystery
A question I had from my last post is how the change in PlanCon financing happened. For all of its life as an apparatus, PlanCon was financed through appropriations from the general fund. In 2016 that changed. Rather than grants through tax revenues, school infrastructure reimbursement by the state would be financed through bond issuance though the CFA.
Why? It’s an interesting story that I only partly understand.
Pennsylvania’s congress can pass veto-proof legislation with sufficient margins. When Democrats side with Republicans this can happen. And it did in 2016 over a fiscal code bill.
Notably for us, the big disagreements with Governor Tom Wolf had to do with school funding. The funding formula had just been updated to account for poverty and other inequities. Turns out Pennsylvania treats its poorest districts very badly in terms of school funding, and the new formula compensated for those inequalities.
Pittsburgh, Philadelphia, and Chester-Upland got a majority of the increased school funding from the new formula. Conservatives in other districts were pissed and colleagues from suburban and rural areas joined them in taking Wolf to task. The manufacturer association said congress gave the governor a civics lesson. (Wolf had objected to the previous code to his credit.)
Along with the decrease in funding to the neediest districts to appease conservatives, there was a proposal in the veto-proof fiscal code to issue $2.5 billion of bonds to finance the backlog of PlanCon applications.
How’d it get there? Was it a Democrat, Republican, or bipartisan proposal? Because what happened was a wholesale reconfiguration of how school infrastructure gets financed, this is a big deal. I keep coming back to this document, published later that year by the Appropriations Committee. It explains and seems to justify the restructuring.
Joe Markosek is a lead. He was a longtime legislative assemblyman from the suburbs of Pittsburgh with a lot of knowledge about the state’s finances. He retired in 2017. (His son Brandon, not yet 30, now holds his seat.) Seems to me that Markosek wanted the CFA financing PlanCon, but I don’t know why.