What went awry with WPPSS? Voters never passed the bonds
Whoops is the name. It stands for the Washington Public Power Supply System (WPPSS) in the state of Washington.
More particularly, it represents the largest default in the history of municipal finance - $2.25 billion in bonds issued to finance two nuclear power plants.
And behind that there is something else - perhaps even bigger: Almost certainly it involves an immediate congressional investigation into the particular circumstance of this gigantic default and, after that, there is an issue that may engross legislators, investors, and the world of finance for years.
Has the WPPSS default exposed a weakness in the financing of so-called ''off-budget enterprises'' (OBEs)? That is, can quasi-public interest groups who want parks, sewers, flood control, zoo maintenance, horse-breeding farms, or whatnot raise the funds and issue bonds outside the regular channels of democratically checked taxes?
Most people don't realize that the WPPSS default is just a small part of the so-called ''off-budget'' process. Writing on the subject, James T. Bennett and Thomas J. DiLorenzo (''Underground Government - The Off-Budget Public Sector,'' Cato Institute, Washington, 1983) declare that ''at present, about 69 percent of all debt issued (by state and local government) is in the form of non-voter-approved revenue bonds.'' Massachusetts, for example has $2.46 billion of ''nonguaranteed'' state debt and $1.19 billion of ''nonguaranteed'' local debt. Other states have comparable debts. The authors emphasize that this indebtedness is customary and safe, and they show the figures in parallel columns merely to illustrate what individual states are doing.
But WPPSS points to the growing amount of off-budget indebtedness. It spells danger. The experts declare:
''The root cause of the WPPSS default is neither simply mismanagement nor a series of avoidable mistakes but rather that fact that, as an off-budget enterprise, WPPSS is inherently inefficient and not accountable to taxpayers.'' It is almost certain to get congressional attention.
Former Gov. Nelson A. Rockefeller of New York exemplified how this system works. From 1959 to 1974, he used OBEs to cut budget corners. After voters thrice rejected a $100 million housing bond issue, the governor created the Housing Finance Authority, which issued large amounts of nonguaranteed debt.
Rockefeller did it again in the off-budget State University Construction Authority after voters in 1961 rejected a $500 billion bond issue for the fourth time. He created the Urban Development Corporation in 1965 after voters turned down a housing bond issue for the fifth time.
By 1975, some 81 percent of the total outstanding debt of New York State was the nonguaranteed debt of OBEs - and the state was on the verge of bankruptcy.
Now, in the case of the Washington Public Power Supply System, the investment has tumbled over the edge. Commotion is growing. Congressmen are asking if this is a weakness in the financial structure that needs to be bolstered.
Here is how the new Bennett-DiLorenzo study puts it:
''The spending and borrowing of off-budget expenditures such as WPPSS do not appear in the budgets of the governmental entities that created them. Off-budget enterprises raise funds not by direct taxation but by issuing revenue bonds that are not approved by voters . . . detached from the scrutiny and control of taxpayers (at least until serious financial problems arise) and are exempt from many of the checks and balances that exist for other firms in the public and private sectors.''
The system is supposed to encourage expansion through private enterprise, free of bureaucratic restraints. Off-budget borrowing is steadily increasing. Currently about 69 percent of state and local government long-term debt is in the form of non-voter-approved revenue bonds.