Tick tick tick
We're starting to see the seams of the City of Portland's finances. The city's in a transportation crisis -- without new taxes, Sam the Tram tells us, our roads will be ever more dangerous and people will die. Meanwhile, the city continues to borrow tens of millions after tens of millions to slap up new infrastructure for the condo jungles. It also finds multi-million-dollar "surpluses" to spend on frills while holding workshops about the lack of funds for basic functions.
How long will it be before fundamental financial problems become apparent? It seems to me that it will come soon -- soon after the next mayoral election, perhaps. You can only play games with your debt for so long before it comes home to bite you. And there's a clear trend emerging toward stricter accountability in municipal finance -- which is bad news for spendthrift cities like Portland.
We've already blogged here about a new set of rules under which the city will have to report more squarely its future obligations to pay for retirees' health care. Commenters pointed out that Portland actually doesn't provide too much in that area, and so maybe that's a bullet dodged.
But since that post, another set of rules has been unveiled that could change radically how the city reports its massive pension liabilities to police and firefighters. As in, change it from denial to stark reality. The city's voters recently voted to put a band-aid over this gushing artery, but if the true picture starts to show up prominently on the city's financial statements, watch out. The new rules, known to the bean counters as GASB 50, are effective for the fiscal year that just began a couple of weeks ago. That means you won't actually see the impact on the financials until the June 30, 2008 set, which won't be released until after the new mayor is sworn in in early 2009.
Today comes another brick in the wall -- the head of the Securities and Exchange Commission is telling Congress that municipal finance reporting is currently so scary that the board which regulates that field -- the Government Accounting Standards Board -- needs to be given new powers.
The City Hall types around the country are screaming just the opposite. They want the GASB disbanded altogether. They don't like an oversight board telling them how to prepare their books. They do like borrowing money, though -- there is something like $2.4 trillion in municipal bonds outstanding these days (no joke).
I do hope that Congress is smart enough to heed the SEC chief's warnings. And I can't wait for the day when the average person in Portland realizes what's been done, and continues to be done, to the city's finances. I'm sure Sam the Tram will have somebody else to blame it on -- probably someone who will be dead by then.
Posted at 9:39 AM
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Comments (16)
I waiting to see the "perp walks" from city hall.
Posted by Bark Munster | July 18, 2007 10:12 AM
I read $75 million per year is now being diverted from CoP general fund property taxes to repay the Urban Renewal schemes that keep on growing. This abused municipal credit card demands replacement revenue for the basic services it vanquishes.
How perfect is the cover up when city officials are telling the public they have a surplus while at the same time brainstorming over how to deal with a funding crisis.
Sam et al are simply dishonest. Somewhere along the line dishonesty became an acceptable form of leadership.
Stunningly too many people are willing to accept it as a neccessary evil and/or live in denial.
Posted by Karen | July 18, 2007 10:44 AM
Meanwhile American Steel relocates from Portland to Canby to save 25% on property taxes, not to mention the Business Income Tax which it can virtually avoid altogether.
Posted by Bill Holmer | July 18, 2007 11:04 AM
Why don't we just hand our paychecks over to those who know so much better than us? They'll give us free health-care, aerial trams, and trains. With any luck, they'll determine how much sugar, starch, and other stuff we need, and cut us a check for the appropriate amount.
Posted by Max | July 18, 2007 11:53 AM
The name "Porkland" is most fitting, no?
Posted by Abe | July 18, 2007 12:29 PM
KarenI read $75 million per year is now being diverted from CoP general fund property taxes to repay the Urban Renewal schemes that keep on growing.
JK:
Here is the proof:
For 2006-07, total taxes imposed for urban renewal agencies in Multnomah County are $74,804,051, an increase of 12.3% over the $66,629,914 imposed in 2005-06. Of this total amount, $60,289,219 came from division of tax calculations while the imposed special levy for PDC’s five Existing Plan Areas increased to $14,514,833 from $14,470,944 in 2005-06. The total amount imposed for PDC, $73,547,737, represents more than 98.3% of the total urban renewal taxes imposed in Multnomah County for 2006-07.
From page 47 of: http://www.co.multnomah.or.us/orgs/tscc/graphics/06-07annualreport.pdf
Thanks
JK
Posted by jim karlock | July 18, 2007 12:36 PM
Get rid of the condo owners tax abatement........30 million a year, exactly what we need to fund the street repairs, ironic....I think not!
Posted by Steve | July 18, 2007 2:07 PM
It is getting pretty hard for a municipal bond lender to actually claim that they are deceived. If they are dissatisfied with the certainty of repayment of "moral obligation" bonds then they are free to discount morality to zero and let the real-party-in-interest recipients of graft (and tax code distortions) supply their hard collateral. Treat it like private debt, without sloppy government guarantees. How novel?
If private GASB is converted mid-stream into a body that can pierce the state 11th Amendment immunity then one thing that must be addressed is that it must only apply to deals that are not yet on the books. (See boring contract clause arguments.)
If state government (by way of municipal subdivisions) shall be forced to use taxing power to buy private investments that are traded on private (open and nonopen) equity exchanges then we should just create our own non-New-York non-London stock exchange and confine the investments to entities that are at least 51 percent owned by Oregonians; and perhaps coupled with a limit on the size of the entities to 25 million in market capitalization.
Let Giuliani (et al) shoot himself and his client list in the foot, provided that local yokels respond with equal self-interested vigor. If we must live with graft then let the beneficiaries be local rather than distant. With a JP Morgan plant on the board of the Institute of Internal Auditors whom do you suppose they are supposed to serve, particularly given the astroturfing about financial accountability coupled with their "ethical" fidelity to stuff like GASB. I'd be more likely to do a 40 year actuarial funding calculation from the perspective of citizens -- and aggregate it -- and conclude that our public bonding capacity is so low that the lenders would scream at the loss of interest payment business derived from local taxing power and NOTHING ELSE. Who's deceiving who?
Posted by pdxnag | July 18, 2007 2:09 PM
What he said.
Posted by Jack Bog | July 18, 2007 2:15 PM
Hahaha.
Does anyone (pdxnag?) know who buys Portland's bonds?
Posted by jim | July 18, 2007 2:25 PM
Here are pictures of some trustees of a fund that buys only Oregon bonds (for resale to little folks and big folks alike). Someone's interest in a piece of the fund can be used as collateral to buy more of the same, creating a nice leveraging device . . . particularly useful within Oregon Commercial Banks in tandem with HUD-related projects.
I am in the business of making enemies in high places. Care to join me?
Posted by pdxnag | July 18, 2007 3:30 PM
C'mon, you know govt account doesn't have a clue want GAAP is, much less spell it.
You get the money and just spend it. Even if it means you are hiring more people you can never lay off. Then when the next downturn comes, you cry you need a new tax.
You finance necessities last (schools/police/roads) and you always have the excuse there isn't enough money.
You start a project without financing, turn one spade of soil and say we can't stop now we have too much invested.
We build 1 mile of streetcar line and then we "need" another 50 miles.
We have to spend $1M because we will get $1M of fed money.
Is there a pattern here?
PS - WHoever the other Steve is, he's scaring me how much he sounds like me. I guess I should listen to myself some time.
Posted by Original Steve | July 18, 2007 6:00 PM
I was at a securities conference in Portland last year where the head of SEC enforcement was talking about going after municipalities (I think the San Diego incident had just made news that week) with greater frequency. In fact, I seem to remember a link from this blog to her announcement of the San Diego incident.
I wonder if another step is to get rid of the registration exemptions for bond issues from municipalities. I can't see how they are justified from an investor perspective anymore.
Posted by Yet another Steve | July 19, 2007 6:50 AM
Portland's financial situation and debt are so troubling, Moody's responded to the crisis in April...by upgrading their bond rating to Aa2.
Disaster!
Posted by torridjoe | July 19, 2007 4:18 PM
torridjoe,
Sugar refiners in Hispaniola, in a bygone era, went to extraordinary lengths to answer the concerns of the money lenders. I hope your view of Economic Development is not to increase production with more of the same? It was/is profitable, for some. Please pick a more qualitative yardstick.
Posted by pdxnag | July 19, 2007 5:29 PM
Portland's financial situation and debt are so troubling, Moody's responded to the crisis in April...by upgrading their bond rating to Aa2.
They liked San Diego bonds, too... for a while.
Those bond agencies are actually hired by the cities they're reviewing. Sometimes that gets in the way of their objectivity.
Kind of like a city fire department employee posting blog comments from his desk.
Posted by Jack Bog | July 19, 2007 5:39 PM