Empower Wisconsin | Dec. 17, 2020
MADISON — Wisconsin’s controversial Public Finance Authority is in the spotlight again — for all the wrong reasons.
And the losers in the PFA’s wake are bond investors and, critics say, Wisconsin’s good name.
The PFA, known as the “bonding house of last resort” for high-risk projects, has had more defaults — 12 — than any other municipal bond issuer this year, according to data compiled by Bloomberg. There had been 70 defaults so far this year as of last week, the most since 2012, according to Municipal Market Analytics.
Bloomberg’s review found 10 of the PFA’s 12 defaults were tied to a nursing home chain in the Southeast.
“In all, about $180 million in defaulted PFA debt represents 9% of payment defaults by dollar value this year, the fourth-highest by issuer,” the publication reported.
The piece opens with the story of Victor Farias, whom federal regulators accuse of fraud for running a Ponzi-style scheme.
“Farias, 47, couldn’t tap the market without help. His startup jet-engine-leasing business based in the San Antonio, Texas suburbs wasn’t exactly the kind of venture normally financed in the safe and stodgy world of state and local government debt. But there was an agency that could do it for him: the Public Finance Authority of Madison, Wisconsin,” Bloomberg reported.
“The PFA was set up a decade ago with the sole purpose of renting out its power to issue municipal debt to businesses all over the country — from real-estate developers and colleges to nursing homes.”
And Planned Parenthood.
As MacIver News has reported, the PFA, created in 2010 through bipartisan legislation, connects investors to tax-exempt “conduit bonds” for “public benefit projects.” It has the backing of the National Association of Counties, the National League of Cities, the Wisconsin Counties Association and the League of Wisconsin Municipalities.
In 2017, then-Gov. Scott Walker vetoed a provision that would have expanded the PFA’s power, giving it the ability to take private property through eminent domain.
State Rep. Scott Allen (R-Waukesha) has called for an audit of the finance authority. The audit has yet to be completed. Allen has been critical of the Wisconsin-based PFA’s relatively minuscule investment footprint in the Badger State.
PFA’s high-risk ventures appear to be a bigger problem.
Farias and his start-up are among the more glaring examples of the risk with Wisconsin’s name on it.
“Today, Integrity Aviation is in shambles. Bondholders have accused Farias of siphoning about $275,000, and a company that leased five of its engines filed for bankruptcy,” Bloomberg reported. The municipal bonds are trading for just 10.5 cents on the dollar in secondary markets, a price that indicates traders believe Integrity won’t be able to repay the debt when due next year.”
Susan Perez claims she is one of Farias’ victims. She told KSAT.com that she invested $380,000 on the aviation business. Perez said she used retirement funds left to her by her late husband, a San Antonio Fire Department Captain.
“First of all, I feel cheated, angry. I feel like a let Ralph down,” said Perez, referring to her late husband.