A CLT BLAST FROM THE
PAST
Citizens Liquidity Trust (CLT) Bond Program
April 6, 1990
- MEMO -
To: Members of the General Court
April 6, 1990
Re: FY'90 Deficit
CITIZENS LIQUIDITY TRUST (CLT) BOND PROGRAM *
Although Citizens for Limited Taxation decries the fact that Massachusetts uses bond revenues for the financing of operating expenses, it seems this practice is necessary for at least
the short run. State officials have delayed a serious spending cut
package until it is too late to deal with the entire deficit for FY'90, so the deficit will have to be bonded.
In November 1990 we hope that the people will again lead their elected officials by enacting
CLT'S petition, finally resolving the debate on cuts vs. more taxes. It is clear that for a number of reasons,
including the fact that they are out of touch with the will of the people, some elected officials intend to allow the fiscal situation to deteriorate to a point where a billion dollars in new taxes would be needed each year just to continue the current level of mismanagement.
CLT has little tolerance for this unholy cat and mouse game. On the other hand, we recognize that those who could be hurt by political gameplaying will not be the powerbrokers found in the State House corridors, but rather the citizens of Massachusetts who will suffer at the hands of a political system that is supposed to protect them -- a political system gone awry.
In recognition of the fact that Massachusetts needs a management tool to fix the problems the Dukakis administration has created, CLT proposes the Citizens Liquidity Trust Bond Program.
CITIZENS LIQUIDITY TRUST (CLT) BONDS
CLT Bonds would be issued in denominations of both $100 and $1000. Enough bonds would be issued to raise $500,000,000. The bonds would be 7% fixed interest zero coupon bonds exempt from Massachusetts and federal taxation. Bonds would be sold at Massachusetts banks and would be redeemable in three years.
Collecting $500,000,000 in this fashion would require an interest
payment of approximately $105,000,000 at the end of three years for a
total payout of approximately $605,000,000. This would allow the
Legislature and a new Administration three years to put its fiscal
house in order so that it could pay those bonds which would cost about
five percent of the current total state spending.
CHARITABLE CONTRIBUTION PROGRAM
In addition to issuing the bonds, the Commonwealth could encourage compassionate bond holders to return the bonds to the Commonwealth as a contribution which would be deductible from federal and state taxes. Citizens who believe that the Commonwealth should be allowed to have the increased revenue for which some people are calling could buy bonds and turn them in to the State. They would then be allowed to take a charitable deduction for an amount equal to what they paid for the bonds. (This of course will require legislation).
If the Commonwealth were able to convince the holders of about eighteen percent of the bonds to contribute those bonds as charitable deductions, the effective interest rate on the $500,OOO,OOO would be zero. If more than eighteen percent of the bond holders contributed their hands, the Commonwealth would actually make money on this process.
CONCLUSION
Although we reiterate that CLT does not normally espouse deficit spending, the fact is that these are abnormal times. We believe that this program allows those people who want higher state spending to have higher state spending without imposing an additional burden on the general population, i.e., it allows certain people to fund their compassion with their own money. Our state government would, meanwhile, have the flexibility and time it needs to solve its fiscal problems.
* adopted from idea in syndicated column by Loring Swaim (below)
The Daily Times Chronicle
Wednesday, March 7, 1990
By Loring Swaim, Staff writer
Beleaguered legislators, take notice: an alert state employee has a neat idea that could conceivably take you guys out of your misery.
If it flies, it could solve the state's fiscal emergency and make lots of ordinary citizens happy in the bargain!
Technically the painless plan is viable, sources say. All that's needed is legislative approval.
All this week and next, the State Treasurer is selling Massachusetts Minibonds, Series T. These are
tax-free "minibonds" available exclusively to individuals -- at 7 percent interest.
The minibonds come in denominations of $100, $500, $1000, $2000 or $3000.
Because they are free of either state of Federal taxes, the actual interest is between 9.5 and 10.5 percent depending on one's tax bracket.
For a $70.89 initial purchase, for instance, the minibond buyer collects $100 at maturity five years later -- tax free.
Normally only big institutional buyers -- brokerage houses or insurance companies who can afford state general obligation bonds at $5000 or $10,000 a pop -- have had the privilege of such handsome returns. The idea of minibonds is to open up the goodies to ordinary working stiffs.
This sale is the finale of a $50 million Series T authorized by the legislature to pay for certain designated capital outlay projects. When sales reach $23.1 million, the window closes.
The State Treasurer has a file of 19,000 satisfied prior minibond customers to build on.
"Why isn't this the perfect way," asks a veteran state employee who is
buying the Series T this week, "to get the $500/600 million the state needs to balance its budget?"
This way ordinary citizens can do something constructive about the state's alarming revenue shortfall, she says, while making a little something for themselves. Isn't that what's needed, getting people involved?
Far better that hardworking citizens get the attractive interest bonanza than big banks and insurance companies!
This would be a lot less painful, too, than the state grabbing the $500 million it needs from ordinary citizens through higher taxes!
All that's needed are a vote of the Legislature to authorize another minibond series -- in this case a special one earmarked for the budget deficit -- and some imagination marketing it.
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