The State Established the State Housing Authority to Finance Construction

Essay

The state established the State Housing Authority to finance construction of low-income housing. The authority, a state corporation, is governed by an independent board of directors, the members of which are appointed by the governor. They can be removed only for cause. The board of directors has complete control over the authority's operations. The director is hired by the board and reports to the board; the director cannot be removed by the governor. Although the state constitution limits the state to $2 million of bonds outstanding, the authority issued $970 million in bonds to finance construction projects. In earlier years, the authority issued debt that was backed by the taxing power of the state (moral obligation debt). The newer bonds are revenue bonds only.
The authority uses the proceeds of the debt it issues to make loans to finance housing construction. Debt is serviced from monies received in repayment of loans made by the authority.
Do you believe the state should include the authority in its reporting entity? If so, how? Justify your answer using the GASB Financial Reporting Entity criteria.