By David Tulis
Chattanooga is burdened by nearly F$1 billion in debt. But that’s not nearly as bad as it sounds if the debt is not owed to other entities.
The municipal corporation is worth F$3.05 billion, according to the most recent net worth statement published by Daisy Madison, the accountant who is the city finance officer.
In its annual CAFR, or its comprehensive annual financial report, the city provides a 15-page listing of “bonds, notes and capital leases payable” that puts the total at F$988.48 million (p. E-3). Debts on behalf of the airport and the city bus company, CARTA, add F$7 million more. Most of the city’s debt arises from it being a for-profit business entity. About three-fourths of its obligations are given as business IOUs vs. debt for governmental functions.
Let’s bring these sums down to earth. Assume Chattanooga has a population of 171,279 people, as reported in 2012. The total debt would equal F$5,771 per person. Mayor Andy Berke’s family of four (he has a wife and two children) would owe, theoretically, F$23,084 for its share of the city’s red ink.
In first considering the debt, one should feel concern, even worry. National economy favors debtors over creditors, financial speculators over producers, consumption over savings. That is to say, the U.S. economy is inflationary, debts being contracted in Federal Reserve dollars, a nonreferential currency not legally connected to silver or gold held on reserve, and so subject to mass inflation. The dollar has so badly shrunk in value that it takes F$23.54 today what $1 was able to buy in 1913.
Still, debt is a burden, and in coming economic crises, the meltdown will occur in the financial structure of the fiat dollar, and debtors will be in a bad position if their loans are called. Is Chattanooga’s debt callable if a crisis in confidence creates a clawback against borrowers, a deleveraging as lenders seek to maintain enough liquidity (at least on paper) to avoid having to shut their doors? Debt tends to immobilize the borrower, to enslave him.
Generally, in even mild depressions (dubbed recessions), cash is king and debt is a curse. When credit gets scarce and cash disappears, loans become unpayable, and creditors come knocking at the door seeking to recoup at least part of their collateral.
To whom is the debt owed?
The prospect of a creditor clamor is less if we consider another question. To whom is Chattanooga corporation’s debt owed? If the debt is owed to itself through funding partnerships in the world of consolidated government, the peril is perhaps less.
If Chattanooga is like many other forms of modern civil government, it owes the money to itself. How so? As proposed by CAFR guru Walter Burien, it’s called “self-funding.”
The methods of back-door investment self-funding of debt is very intricate and diverse. It can be done through investment pools, swaps with banks, insurance companies, international holding accounts, enterprise operations, between local governments inter-department funding each other, etc.
Municipal corporations have wealth is so great that they are the largest player in the country in otherwise private investment, he says. Assets of about 180,000 government entities required to file CAFRs pass F$110 trillion, he estimates. The federal government debt is F$17 trillion.
Government promotes debt at the front door and uses its own investment assets through the back door to fund that promoted debt, Mr. Burien says. Cities and industrial parks and school systems create a parking zone for the truckloads of cash they were bringing in. They lock in a return on their investments and draw down budgetary operating funds “to give the impression they needed more taxation or debt incurred to operate.”
Government money laundering
If a “complete and true” audit is done on government debt “cutting through all the masks present to cross match the investor with the *** debt,” he says, “probably 65 percent of that debt *** would be determined to be ‘self-funded.’ I cannot emphasize how important the comprehension of this one issue is.
“Government keeps rolling over [its] wealth,” Mr. Burien says, “building it in this fashion. It also gives them the front to funnel massive amounts of revenue out of their operating budgets, justified by the same debt so that wealth does not return to the population.”
Money is laundered not to hide an evil, but to spare alarming members of the public with the startling success of commercial government.
An illustration from Mr. Burien
It’s “kinda like if you gave me F$10 million in cash and had me start a mortgage company and then you bought a F$10 million dollar shopping mall and had me underwrite the mortgage for F$10 million with your own F$10 million,” says Mr. Burien, who runs CAFR1.com out of St. Johns, Ariz.
Your mortgage payments would take away most of your income as it built back “with interest” with me in your behalf. You could now tell all of your friends and business associates how broke you were paying off on the mortgage on the shopping mall. Slight tad bit of misrepresentation when you never mention the F$10million was yours in the first place.
Mr. Burien is something of a character, as you will discover from his website. His exploits revealing CAFRs are hair-raising. After he began a campaign of “national exposure,” as he calls it, in 1998, CAFRs stopped publishing gross financials, but used net. I downloaded the 1999 CAFR from the city government website and looked through it. It seems similar to the 2013 CAFR, and I cannot draw any conclusion about how reporting might have shifted.
If Mr. Burien is right, and many assets owned by municipal organizations are converted into debts, then Chattanooga is richer than we think. The sum of its value is not F$3 billion, but F$3½ billion or F$4 billion. The real wealth cannot be immediately known to outsiders. I’ll have to ask Mrs. Madison. And if Chattanooga is richer than its CAFR suggests, it will be stronger in future crises.
If it is stronger financially, it could take part in a local economy and free market revival. It could slash taxes 50 percent, 75 percent or 100 percent. Chattanooga could transform itself, with long-term positive leadership from people such as Andy Berke, into a free trade zone that would be a relocation magnet for people around the country, rich and poor. Perhaps people of Chattanooga might, meanwhile, make counterrevolutionary step to further that process: Close county schools. That slashes half the county’s tax bill, a quarter of the state’s.
My little pipe dream formula: U.S. financial meltdown + school cartel closures + tax free zone creation = prospect for unparalleled prosperity in Southeast Tennessee. Let’s see what people are open to doing.
David Tulis is married, the father of four home educated children, and a deacon at Brainerd Hills Presbyterian Church in Chattanooga. He hosts Nooganomics.com at Chattanooga’s CBS Radio News affiliate, Hot News Talk Radio 1240 AM 1 to 3 p.m. weekdays on the federally regulated airwaves in Chattanooga, South Pittsburg and Dunlap.