Day County needs a new county government building that wouldcost $10 million. The politicians feel that voters will not approvea municipal bond issue to fund the building since it would increasetaxes. They opt to have a state bank issue $10 million oftax-exempt securities to pay for the building construction. Thecounty then will make yearly lease payments (of principal andinterest) to repay the obligation. Unlike conventional municipalbonds, the lease payments are not binding obligations on the countyand, therefore, require no voter approval.
1) Do you think the actions of the politicians and thebankers in this situation are ethical?
2) How do the tax-exempt securities used to pay for thebuilding compare in risk to a conventional municipal bond issued byDay County?