Bonds are a complicated feature of public finance, even after reading some books on finance and studying public budgets it can be hard to account for how much a bond release costs. But it would seem to me that if interest payments are equal to the principal then you walk away from the deal.
These are not even standard bonds, these are Capital Appreciation Bonds; the same bonds that have been in the news and caused problems at Poway Unified School District where the school district owes $1 Billion Dollars on a $100 Million Dollar bond loan.
From the Comprehensive Annual Financial Reports of 2011:
In October 2005, the City issued City of San Bernardino Taxable Pension Obligation Bonds, 2005 SeriesA, consisting of $36,050,000 principal amount of Taxable Pension Obligation Bonds, Series A-1 (standard bonds) and $14,351,583 principal amount of Taxable Pension Obligation Bonds, 2005 Series A-2 (capital appreciation bonds). The City issued the bonds in order to prepay its unfunded accrued actuarial
liability related to the City’s safety retirement plan.
The standard bonds are dated October 1, 2005, with an interest rate of 5.628%, maturing annually commencing October 1, 2024 through October 1, 2035.
Interest is due annually commencing on October 1, 2006 through October 1, 2035.
The capital appreciation bonds are dated October 1, 2005, with interest rates varying from 4.993% to 5.877%, maturing annually commencing October 1, 2007 through October 1, 2024.
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