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In the early 1970s, New Jersey officials decided to build a sports facility in the Meadowlands, the state’s wetlands just outside New York City. To help pay for it, they formed the New Jersey Sports and Exposition Authority (NJSEA), a quasi-governmental agency with the power to issue debt. The authority floated $302 million in bonds, used the proceeds from the bond sale to construct Giants Stadium and a Meadowlands racetrack, and planned to pay off the debt in 25 years, largely with proceeds from the track but also with some help from the stadium. Horse racing proved a big hit, and the plan seemed bound for success.

But the pols couldn’t resist soaking the Meadowlands. They siphoned track proceeds into the state budget; repeatedly refinanced the...