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IPFS News Link • Pensions

California Cities Using Their Streets As Collateral To Pay Down Pension Liabilities With Debt

• by Tyler Durden

You take on more debt, using whatever you can think of as collateral. 

Such was the case in West Covina this July, where the city is paying off its $205 million debt to CalPERS by issuing bonds using its city streets as collateral, according to Forbes. The city of Torrance has done the same thing; it will issue $350 million in bonds using its streets as collateral, as well.

Both cities are using something called "lease revenue bonds" which means that:

orrance and West Covina are each using these bonds to, in principle, lease their city streets to a special Financing Authority, which will pay the city their up-front money, and "rent" the streets back to the city for the 25 year term of the agreement, in order to pay off the bonds.

In this structure, however, the bondholders don't actually have rights to lay claim to the streets. Rather the mechanism is described as a loophole to get around the voter approval that comes with "general obligation bonds".