“Underground Government” is a short polemical policy essay, originally a Notes piece, on the fiscal evasions of modern government. Sennholz’s subject is not the ordinary black market but its public-sector analogue: the network of off-budget enterprises, authorities, corporations, and government-sponsored devices through which officials expand spending and debt beyond voter scrutiny.
The essay opens by turning a familiar argument about tax evasion back upon the state. Citizens may flee oppressive burdens into unlicensed work or black markets, but officials likewise flee restraints on budgets, debt, and taxation.
When the burdens of government become oppressive, many individuals are tempted to escape their obligations, even in violation of legislation and regulation.
Sennholz’s conceptual move is to make “underground” a symmetrical category. It names not only private illegality but public concealment: a political class responding to fiscal limits by moving activity “off-the-books.”
In a similar way, politicians, legislators, regulators, and other agents of officialdom seek to escape all efforts toward curbing them.
The central institution in the essay is the off-budget enterprise, or OBE. These entities appear as authorities, boards, commissions, corporations, or trusts, formally outside normal government accounting and often insulated from ordinary democratic checks. They lack direct taxing power, yet can spend, borrow, monopolize services, employ political allies, and pass losses to taxpayers.
OBEs lack taxing power but enjoy vast spending power.
Sennholz treats this as a constitutional and political problem rather than merely an accounting defect. Off-budget government allows officials to evade debt limits, voter approval, and public inspection while continuing to enlarge the public sector.
Their spending and borrowing are deleted from any government budget or record, their debt is exempt from any constitutional debt limitation, nor is it subject to any voter approval.
The middle of the essay develops the argument through examples. At the local level, Sennholz emphasizes municipal authorities in airports, parking, sewer, water, recreation, waste, and health services. These bodies may receive monopoly privileges while competing against taxed and regulated private firms. Their privileges do not produce efficiency: in his account, poor management and political labor arrangements create losses, debt, and eventual public assumption of liabilities. The OBE therefore combines market power with public irresponsibility.
At the state level, New York functions as Sennholz’s emblematic case. Repeated voter rejection of bond issues did not stop public housing, higher education, or development projects; instead, the legislature created new off-budget entities to issue obligations outside normal approval channels. The logic is cumulative: when one authority fails, another may be created to refinance or conceal the failure. Thus resistance by taxpayers does not reduce government activity; it induces institutional migration.
Taxpayers have no voice in such matters.
The final section extends the diagnosis to the federal level. Sennholz identifies several mechanisms: removing activities from the budget, creating new off-budget entities, acting through government-sponsored enterprises, and using loan guarantees to redirect private credit. His claim is that all of these devices falsify the apparent scale of the state.
All these avenues of escape make government activity appear much smaller than it actually is.
The essay’s relevance lies in its insistence that public debt is not exhausted by visible budgets. Sennholz warns that balanced-budget rules, tax limitations, and constitutional debt ceilings fail if officials can create parallel institutions to borrow and spend outside them. His core thesis is that fiscal discipline cannot be imposed while legal “backdoors” permit concealment.
The possibilities for concealment, deception, pretext, sophistry, stratagem, and plain trickery are endless.
In structure, then, the essay moves from analogy, to definition, to local and state evidence, to federal mechanisms, and finally to a general warning. Its libertarian critique is less about any single enterprise than about the political incentives that produce them: officials confronted with limits do not necessarily economize; they reorganize government so that its costs become harder to see.
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