Treasurer Phil Angelides and Attorney General Bill Lockyer filed papers in San Bernardino County Superior Court to halt a planned $15 million bond sale by two Central Valley cities. The bonds would finance a housing development 300 miles away in San Bernardino County. Angelides and Lockyer filed an answer to a validation action submitted by the Rancho Lucerne Valley Public Financing Authority. The Superior Court will now conduct a trail to determine if the bond sale can go forward. Waterford, a 6,600-person city in Stanislaus County, and San Joaquin, a 3,100-person city in Fresno County, joined with a developer's private water company to form the financing authority. They want to issue $15 million worth of bonds to build the 4,000-home Rancho Lucerne subdivision and golf course in San Bernardino County. Forming the authority made use of a loophole in a 1998 law that requires a geographic connection between local bond issues and the project being financed. Lockyer referred to the planned bond issuance as "municipal junk bonds." Angelides said such bonds shake the confidence of investors in more legitimate local financing for schools and roads. Assemblyman Dean Florez (D-Shafter) said he would introduce legislation to eliminate the loophole. Officials of the two cities said the state was overreacting and contended that such bond deals make towns hundreds of thousands of dollars for local projects. But a 1998 state auditor's report said Waterford and San Joaquin had abused the 1985 Marks-Roos Local Bond Pooling Act.