SMART: Is it a Lie when a Public Agency only Discloses Half of the Story?

SMART’s press release last week on its planned bond issuance makes the following statement.

“We plan to sell bonds and put the proceeds in escrow pending the results of the signature gathering. This will allow us to maximize the benefits of the current construction bid climate, which can deliver substantial savings for the taxpayers’ dollars.”

Does anyone else see what’s missing from this statement? (Hint: They didn’t disclose that the issuance could cost more than a million dollars in “negative carry.”)

The fact that the bond proceeds must be placed in escrow means SMART can’t spend the funds on construction until the repeal process is resolved, which as everyone — including SMART’s “disclosure counsel” — now expects may not occur until December 2012 following a vote on a repeal measure.

Once SMART issues these bonds, it is going to be paying a much higher interest rate to the bond holders than what it will earn on the escrowed funds. This difference is a negative number and it is called “negative carry.” Even if it is only one percent and bonds are escrowed until late next year, the $175 million bond issuance could cost SMART about $1,750,000 in negative carry and still not provide any funding for construction of the rail line.  

Now, that seems to me to be a relevant piece of information, something that should have been discussed at last week’s board meeting.  But it wasn’t discussed.  The public did not hear from SMART nor did the media report that the bonds could come at great cost to the taxpayers. 

So, by only telling the public part of the story, did SMART lie? When SMART spends taxpayer funds on PR that misleads the public by not disclosing relevant pieces of information, is that wrong?

To me, the answers to these questions are clear. SMART has been misleading the public for years. Based on their simple press release about bond financing, the agency clearly intends to continue down this same unethical path.