To the Editor:

from NewsLink, Vol. 2, No. 2, Winter 1998

In your Fall 1997 newsletter, Aniko Laszlo articulates very well the rationale for issuing financing instruments of different maturities. As she writes, "financing on a benefit basis requires that the maturity of the bond and that of the underlying physical asset match." Following that principle, the financing of the MetroWest tunnel must have a term well beyond thirty years. Deep rock tunnels, like the MetroWest Tunnel, have an estimated useful life of 100 years - though in many instances that may be an underestimate. The Hultman Aqueduct that currently services the MetroWest area has lasted sixty years, even though it is not a "deep rock" tunnel. Ms. Laszlo's prediction that the MetroWest Tunnel will not last forty years assumes a massive, unforeseen catastrophe will strike this part of the country before 2038.

Ms. Laszlo also notes that the ultimate arbiter of a bond's length of maturity is the financial marketplace, which she claims views bonds with maturities greater than forty years as "untested." Again, my agreement with Ms. Laszlo on the first point leads me to a different conclusion with regard to the second. One of the Nation's largest water utilities, the Los Angeles department of Water and Power, regularly issues debt with maturities greater than forty years. In 1994, the New York/New Jersey Port Authority issued debt with a final maturity of 100 years. Standard & Poor's gave the issue a AA rating.

Sincerely,

Charles D. Baker
Secretary, Administration and Finance
Commonwealth of Massachusetts

---

NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
Revised on 9/9/02 3:49 PM