State Bond Issues Based on Smoke and Mirrors
Re “State Paying a Premium to Renew Debt,” April 28: State Treasurer Phil Angelides is selling bonds where the state pays interest only for the first five years and then pays interest and principal for the remainder of the life of the bond.
The L.A. Metropolitan Transportation Authority used this game plan in the 1990s, when it sold bonds that required interest payments only for the first 10 years and then interest and principal payments for later years of the bond issue. Thankfully, the MTA stopped this practice.
In addition, the state has sold bonds backed by tobacco-settlement funds. Philip Morris almost had to declare bankruptcy in April because of a large appeal bond required by a court when it lost a lawsuit. Bankruptcy was avoided when the amount of the bond was reduced. If Philip Morris is forced into bankruptcy by a future tobacco lawsuit, the flow of tobacco-settlement funds to the state will stop and California may follow Philip Morris into bankruptcy.
Angelides has set a bad precedent by selling interest-payment-only bonds and tobacco-settlement-funded bonds. Our children may have the obligation of paying off bonds that were sold for our short-term benefit.
Larry Burks
San Pedro
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