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Wednesday, April 19, 2006

Portland municipal bankruptcy watch

It's right there on the front page of today's O -- what commenters have been posting here for months now. There's a serious question whether the infrastructure costs in the SoWhat district can be paid for out of property taxes in the district. And so a lot of the money that the city's borrowing to build down there -- now budgeted to run up to $110 million, and I'm sure that's a cooked number -- is likely to be paid back out of the general fund.

It's San Diego in the making, folks -- grave financial distress for the city is ahead.

Here's the most priceless aspect of the whole rotten can of worms:

Portland Development Commission officials think they eliminated much of that risk.

Under the proposal, North Macadam Investors would guarantee to build five condo towers so the city would have enough tax revenue to pay its bills. If they don't follow through, North Macadam must pay the difference or give its land to the city....

Trouble comes only if the condo market tanks in the next five years. No one has that crystal ball, but even some of South Waterfront's biggest backers acknowledge some qualms.

"You've got to wonder how much the market will support," said Bob Scanlan, whose company ScanlonKemperBard helped fund North Macadam's construction. "I'm not so worried about the condo demand disappearing. I'm more worried about the condo buyers' ability to sell their house. Therein lies the $64 million question."

And so the city's security is that they'll get Homer Williams's land from him? That's comical. The place is a condo skyscraper jungle. If the properties won't pencil out for condos there, they probably won't be worth much for anything else, will they?

The cast of characters who set this disaster in motion is a large one. Vera Katz, Neil Goldschmidt, Peter Kohler, Erik Sten, Dan Saltzman -- even Mark Hatfield showed up for a few pictures. But now Tom Potter is adding his name to the list -- a list that no one will want to be on about 10 years from now. Of course, by then he'll be in Hawaii, collecting his pensions -- which is the other giant anvil around the city's neck.

There comes a point where you realize that you have to stop using your credit cards for frivolities. We're way past that now.

Comments (18)

The condo market is already tanking.

This is becoming borderline criminal.

The 2005 Tram Awards announce the winner of the Cover-Your-Ass prize and it goes to the Oregonian for the phrase, “But what’s been lost in the debate…” No, the debate has covered the downside of this thing. Unfortunately, the city’s Pulitzer Prize-winning newspaper did not participate in the debate, which was held on this blog. The newspaper was late to address the problems, because the paper was working as a PR wing for OHSU in helping to market this boondoggle. Now that the tram vote has been safely greased through, the Oregonian can no longer pretend that the tram was the only part of this that didn’t add up. It is now turning it’s attention to the boondoggles elsewhere. That’s fine, but to pretend you’re bringing this to our attention is a little disingenuous. That level of B.S.-ing is normally only found in Washington. Perhaps you’re angling for Scott McClellan’s old job. What’s been lost in this debate is the Oregonian’s integrity as a newspaper.

The 2005 bit will become more clear the night of April 25th at “It’s a Beautiful Pizza” on Belmont from 6 to 8pm.

Banking on the condo market NOW is like buying a ton of stock in in 2000.

If they don't follow through, North Macadam must pay the difference or give its land to the city.

Am I the only one who thinks this sounds a lot like Rose Garden redux?

Banking on the condo market NOW is like buying a ton of stock in in 2000.

That's what I'm banking on. The more I hear people tell me they like the "fundamentals" of the Portland market, the closer I know we are to the correction and the closer I am to buying an affordable house. Between the "flippers" and the folks on the late-night infomercials who can do no wrong, there's a ton of stock out there and no real buyers.

Condos are like baseball cards. They're worth a ton of money until you have to sell them.

Aren't all of these condos tax abated for at least 10 years? If so, what taxes are supposed to create the TIF to pay the bills? So they borrom money to subsidize projects, then abate the taxes that would pay off the debt.
Am I wrong?

Bill McDonald announces: The 2005 bit will become more clear the night of April 25th at “It’s a Beautiful Pizza” on Belmont from 6 to 8pm.

Damn... Yet another night I work. Ah, well, you'll provide blow by blow I hope?

I think the chance of municipal bankruptcy is pretty remote. Even if the condo market tanks (and a complete collapse seems unlikely given that these condos are being snapped up at record pace), the City would be on the hook for the annual debt payments for some unfunded portion of the $110 million. And I'm sure the City could restructure the debt if that were to occur. In the end, I think the worst case liability would be no more than, what, $5 million a year? I understand why reasonable people might criticize the decision to invest in SOWA to begin with, and certainly if the City has to use general fund money that is a bad thing, but even the worst case scenario is unlikely to cause a fiscal collapse.

I think the debate is more about priorities than it is fiscal recklessness. The City is on a pretty firm financial footing, at least compared to the County and State.

Although I understand that the condos are indeed being snapped up at a record pace, I am under the impression that a great many of these units were purchased by speculators/investors and not by people who actually intend to live in them.

Wasn't there an Oregonian article in the last year or so that discussed how the brokers representing the building owners started to require prospective purchasers to attest that they actually intended to live there?

For your additional entertainment, you oughta experience entering and leaving the under-construction SOWA site. It ain't easy. Once you get in there, take a tour and look around. It's a virtual checkerboard of in progress condos and OHSU buildings, interspersed with ongoing/operating heavy industrial businesses, storage facilities, chain link fenced lots, patchwork of disconnected streets under construction....etc....etc. Not a pleasant visual at this stage of development. If I were a condo owner, slated to take possession and move in whenever completion is achieved, I'd have some serious questions about this less than friendly/inviting environment. Loooooong way to go before this sowA's ear looks anything silken purse-like.

As I read the O's article, they claim that one part of this problem is that the fraction used citywide that sets assessed value from the real market value for new construction, has dropped. But it's a no-brainer that this number has to have dropped the past couple of years - after all, assessed value grows at 3% maximum per year, per Measure 56 limits, while RMV grows as supply and demand dictates - 17% for 2005, more or less, depending on who you talk to. What's bogus about this part of their argument, is that unless SoWa condos drop more RMV than the average across the city for all existing real estate, the assessed valuations for these condos - both existing or yet-to-be built - will grow at (surprise) 3% a year, regardless of RMV growth.

It might well have happened that condos indeed have acted this way in the housing market, but there was only an anecdote offered - no hard data - to convince us of this.

Now, perhaps PDC cooked up *projections* that modelled the condo market as always outpacing RMV growth compared to other housing options, that didn't pan out as planned. That I might believe.

Bob - I think the City can only abate it's own taxes, not the tax rates for other taxing districts. Remember, the UR District gets the incremental taxes from ALL the taxing districts: City, County, Metro, Schools, etc.

So . . . are our city fathers fiscally reckless, or just riskily feckless?

Mr. Magoo, I don't think so or this story in the Oregonian would not have said the UR, robbed county programs like head start.

aper: Oregonian, The (Portland, OR)
Message: PORTLAND MAYOR WON'T WAVER IN URBAN RENEWAL DISPUTE Mr. Magoo, I don't think so or this story in the Oregonian would not have said the UR, robbed county programs like head start.

aper: Oregonian, The (Portland, OR)
Author: DAVID AUSTIN - The Oregonian
Date: July 26, 2000
Page: B02

Portland Mayor Vera Katz expects Multnomah County to give up roughly
$4.5 million a year for 20 years to help create an urban renewal area in
North and Northeast Portland that will include a light-rail line,
affordable housing and retail shops.

And I'm sure the City could restructure the debt if that were to occur. In the end, I think the worst case liability would be no more than, what, $5 million a year?

It's debt. It has to be repaid with interest. What you're saying is that if your minimum payment on your credit card is only $50 a month, you're fine even if the balance is $50,000. If the city has to use general funds to pay off $40 million of principal on debt, plus interest, that's like $40 million out of the general fund today.

Add to the SoWhat boondoggle, which will be $150-$200 million when it's done and the truth is told, the "nothing-in-the-bank, pay-as-you-go" police and fire pension fund, and it's San Diego. You watch.

Mr. Magoo, April 19, 06:23 PM
Bob - I think the City can only abate it's own taxes, not the tax rates for other taxing districts. Remember, the UR District gets the incremental taxes from ALL the taxing districts: City, County, Metro, Schools, etc.
JK: Page 17(PDF) of the, PDC written, REPORT ON THE NORTH MACADAM URBAN RENEWAL PLAN has some estimates of the revenue taken from the following:
Multnomah County
City of Portland
Port of Portland
Portland Public Schools
Mult Co. Educ. Service Dist.
Portland Community College


No worries, Jack. It's small change.

"As of June 30, 2005, the City had total bonded debt outstanding of $2,165,905,387." (p.27)

Total debt increase from prior year: $107,289,654. (p.28)


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