Public Authorities

Public authorities, also known as public or government corporations, are business-like organizations that manage, maintain, or regulate the major capital assets of governments such as highways and mass transportation, water and sewer passageways, and construction of universities, hospitals, and other public buildings. They also fund projects by providing investment capital for private economic development. Although they may act like businesses, they are subject to neither laws governing private corporations nor municipal regulation in managing public assets. Public authorities are provided with a broad range of powers that are defined via state statute; they are viewed as instruments of government designed to pursue a specific purpose. Used mainly at the state and local levels of government, public authorities have a voluntary board of directors appointed by the state's governor to manage staff and monitor daily operations. Authorities can be interstate corporations that regulate shared assets between two states (such as the Port Authority of New York and New Jersey and the Tennessee Valley Authority).

Public authorities are provided with the power to levy taxes and tolls, create contracts, condemn property, and loan money, but their financial actions are not considered a part of the state budget. Moreover, authorities have the privilege of developing and controlling budgets that are not subject to public approval. Funds are procured via fees (e.g., bridge tolls) or through government bonds. Revenue bonds, for example, are sold to private investors for a certain project by the public corporation, and the debt is paid from proceeds generated by the project. The debt is viewed as the legal responsibility of the corporation, not the state, and is therefore not considered a part of the state budget. The sale of bonds also allows for public investments without having to raise taxes. Projects created by public authorities provide the state with much-needed public assets, and some facilities may be sold to corporations, giving the government an infusion of cash from the sale.

A public authority can incur three types of debt: backdoor, project revenue, and debt for private entities. Backdoor debt is debt issued to state and local governments outside the legal, constitutional borrowing limit and is backed by tax revenue. Project revenue debt is issued for projects that the authority is undertaking. Debt for private entities is accumulated for economic development purposes. In New York, the state government cannot borrow money unless voters approve the purpose and amount. Most of the time, voters are reluctant to accede to projects that will incur debt and raise taxes. Therefore, the creation of a public authority is a method for circumventing public approval.

In the United States, during the early nineteenth century, many states were focused on developing and building the country. A large amount of money was spent on funding large infrastructure projects such as railroads and canals. When the Great Depression of 1830 hit, state governments ended up defaulting on guaranteed debt. The result was a rewriting of state constitutions to restrict state credit. The restrictions included a ceiling on how much could be borrowed in relation to the assessed value of the project and a requirement stating that a referendum must be held to allow borrowing. This was the first introduction of revenue bond financing for development purposes, with the responsibility of handling such funds given primarily to government agencies.

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