Are You One of The Favorites Who Benefits from “Public Benefit” Spending?

Wyoming's Legislative Service Office (LSO) released a report evaluating Public Purpose Investments (PPI), the use of the Permanent Wyoming Mineral Trust Fund (PWMTF) to subsidize loans in the state. The report found that PPIs returned less financially than the Treasurer's regular portfolio. This is important because no matter how politicians try to spin the benefits, our state funds should not sacrifice returns to show favoritism to favorites. It twists the conveniently foggy notion of "public benefit" into a pretzel.

Good public policy is based on bright-line definitions — in this case, that all PWMTF investments be made solely to maximize return on investment. However, a project with a "public purpose" is defined as one that would diversify the economy, create jobs, speed up construction, increase economic activity during slumps, generate tax dollars, and increase productivity. In fact, this nebulousness made it impossible for the LSO to determine whether the people of Wyoming are better off with this program or not.

But probably not. Missing from the calculation are opportunities foregone by people who don't benefit— who don't get the loan, don't get the jobs, don't get any new revenue, and who furthermore lose any benefit they would have had from the revenue sacrificed to do favors for favorites. It is time to do away with Public Purpose Investments programs because the obscure, ill-defined language invites corruption and opens the door to cronyism.

Public Purpose Investments, according to the report, are in fact difficult to define. Who can track outcomes for such general criteria as how the use of funds focuses on people, communities, or businesses within the State rather than financial rate of return analysis? As the investment moves farther away from a market-based, financial rate of return rationale, it becomes even more difficult to determine whether taxpayers are being properly compensated. So we shouldn't be surprised to learn that the state lost between $2 million and $19 million in forgone revenue between 2006 and 2015, depending on how the funds would have been invested had they not been used to supported these politically motivated spending schemes. It is probably a good thing that the total subsidized loans outstanding are capped at $600 million and only about 25 percent of this amount has been used during the past decade.

Government spending on what government officials define as economic development makes the people of Wyoming worse off because governments make decisions based on political expediencies and so place economic considerations second to political considerations. One wonders about the extent to which decision makers have an educated understanding of economic principles they so frequently violate.

At the moment, the state manages more than 15 different PPIs, including farm loans, bank loans, student loans and aeronautics loans for a total of $142 million in outstanding subsidized loans funded from the PWMTF in 2014.

Once particularly risky program is the Industrial Development Bond (IDB). This program loans money to large industrial concerns with capital from the PWMTF. The program can hand out as much as $300 million should businesses come forward with hat in hand. Incidentally, the legislature reduced the total handout availability for the IDB program from $600 million in the 2013 legislative session.

The IDB program currently provides loans of $54 million at highly subsidized interest rates to two private uranium mining companies. Why highly subsidized? When the Wyoming Business Council recommends interest rates on loans that benefit private companies from the PWMTF, it uses rates earned by the PWMTF instead of rates the company would pay in the private financial market.

The uranium mining companies, Uranerz and Ur Energy, pay an interest rate of 5.75 percent per annum on their IDB loans. What were they paying in the private sector before they used taxpayer-funded loans to pay them off? Uranerz paid 10 percent and Ur Energy had two loans it paid 16.1 percent and 21.6 percent on respectively.

This means that the government is competing with private sources of capital by taxing its citizens to do a "public benefit." It hurts both the taxpayers and private sector lenders.

Government either sets the stage for entrepreneurs to develop and enhance economic development, or it gets in the way and slows it down, making everyone worse off. Tax dollars should not be spent to subsidize the borrowing costs of private concerns. Cheap loans are an inappropriate use of the PWMTF no matter how government officials try to spin it. If a project is a good one, private investors would gladly fund it.