California Towns Are Leasing Back Their Own Streets To Build Prisons, Finance Pensions | WHAT REALLY HAPPENED

California Towns Are Leasing Back Their Own Streets To Build Prisons, Finance Pensions

What matters most: The unique structure of a lease revenue bond makes the essentiality of the facility being leased and the legal protections on appropriating funds very important. Bonds backed by structures with lower essentiality and limited protections for appropriating funds will usually be lower-rated and have higher yields. Our opinion is to be cautious of bonds backed by lease revenues, as these bonds should be viewed more like general government bonds, not revenue bonds.

Although the name of the bonds implies that the streets are nominally being "leased," the bondholders will not have any particular rights to lay claim to the streets; despite their status as “collateral,” the bondholders can’t take them over and charge tolls if a city defaults on the rent.

Instead, the town "leases" the area to a 'financial authority', which forks over the cash up front. The city will then pay the "rent" to the leased-back land. The “lease” component then becomes little more than a gimmick. The LRB is effectively an example of Wall Street helping to supplant the will of the voters.

Webmaster's Commentary: 

The way these are structured, to bypass states' voters will, should be made illegal.

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