In a stage show I toured with several years ago, I did a version of the cups and balls magic trick. The object is to make the ball disappear from under one cup and reappear under another. But, I'm sorry to say there is no magic, and the way to do it is just to hide what you're doing and make the audience look somewhere else while you make the switch. This makes for great fun and intrigue as a magic trick. But when such a trick is beneath our state's fiscal crisis, it’s problematic.

The New York Times ran an article last week called "Payback Time" describing how the borrowing practices of states have created perfectly avoidable fiscal crises. Rhode Island was -- of course – singled out for special mention. We borrow a lot, more than we ought to, and more than we need to.

The article overstates Rhode Island's problem somewhat by quoting an economist from the conservative American Enterprise Institute, but he's not far off and the truth is that a substantial part of our current fiscal crisis actually is due to unwise borrowing, particularly at the Department of Transportation.

DOT is in hard shape these days. It is spending hundreds of millions of dollars a year, but it can't seem to fix the bridge near my house, and it can't seem to fix the I-95 bridge in Pawtucket, either. How did it get that way? By hiding the problem and getting people to look somewhere else.

The state receives a hundred million dollars every year from the federal government to fix the roads, with the stipulation that we match 10-20% of the money, depending on the program. These days, it works out that we put up a $40 million match, and get about $260 million to spend on roads. The problem is that we borrow the match, and have been doing so since the 1980's. It's a practice that began way back, but it became routine under Governor Ed DiPrete's watch, and despite some attempts to beat it back under Governor Bruce Sundlun, has been going strong ever since.

By now, it seems normal, since it's been going on so long, but other states don't do this. Other states might borrow for a specific big project, but we borrow the same amount of money, year in and year out. Or we did, until Governor Carcieri dramatically escalated the borrowing when he came into office, more than doubling the state's tax-supported debt, and quadrupling the amount of debt service DOT pays.

But these numbers don't appear in DOT's budget. A perusal of the budget documents give you no idea that the department is in such sorry shape.

How do they do it? During the Almond administration, when it became clear that accumulating debt was going to drive the DOT budget into the red, the administration created the "Department of Debt Service Payments" – a department with a title, and no staff at all – and moved the payments there. It sounds like a joke but it's on page 46 of this year's budget. DOT pays $44 million in debt service out of that department, more than the $40 million it will borrow next year.

But this wasn't enough of a trick. Because we have apparently come to think of our bridges as disposable items -- to be rebuilt occasionally instead of maintained regularly -- we needed to replace the Providence River and Sakonnet River bridges, and when Governor Carcieri came into office, DOT was ready to hide a much bigger pile of debt. So they invented Motor Fuel Revenue Bonds, and let the Economic Development Corporation issue them, and so there's another $119 million of debt there, at $9 million a year. Because these bonds went through EDC, they didn't need a referendum.

And then there are the "Grant Anticipation Revenue Vehicle" (GARVEE) bonds, more than half a billion dollars, borrowed against future federal highway funds, currently costing $45 million a year. These bonds are said not to be "tax supported" so they didn't need a referendum, either. But unfortunately, they are all debts of the state, and we have to repay them all, so the distinction is meaningless.

What's the bottom line? The Department of Transportation alone is responsible for over a billion dollars, almost half the total, of the state's outstanding general debt costing us over $100 million in debt service every year. Over $75 million of this was accrued under the Carcieri administration, and most of the rest under Lincoln Almond.

The vast bulk of this debt could have been avoided by prudent budgeting over the past two administrations. It might have been more expensive in the short term, but ultimately far cheaper than the situation we're in now. Instead, both Lincoln Almond and Don Carcieri chose to borrow, to pretend that the Department wasn't in the sorry shape it is. Unfortunately, there is no magic, only a shell game.

It's too late to prevent this crisis. We borrowed the money and have to pay it back. But it is possible to keep the problem from getting worse, to restore transparency and responsible budget principles to transportation planning. What it will take is honesty in our budgeting and a frank assessment of our state's transportation system and needs.

The supplemental budget for the current fiscal year is out, with predictable criticism from many quarters, including this one. But as we gaze upon the wreckage, please let's remember that many of the forces that brought us to this pass -- slashed programs designed to save money, tax cuts we never budgeted for, and over-reliance on borrowing -- are still engaged, still pushing, and still making the problems worse. But it's apparently more satisfying to blame state employees and teachers, so these important problems go unaddressed year after year, while everyone wonders what happened.

13 April 2010