Buying white elephants on time (Jack Bog's Blog)

Our recent review of the City of Portland's long-term debt turned up a host of interesting facts about our local government's finances. One of them was how much debt encumbers the city's "general fund" -- the one that's filled each year with our property tax dollars (or your landlord's property tax dollars, which he or she passes on to you, the tenant, in the form of higher rent). Between the city's "unlimited tax general obligation bonds" and its "bonds paid and/or secured by the general fund," the amount of the long-term debt is just shy of $720 million.

Of that amount, about $298 million are "limited tax pension obligation revenue bonds," already floated to prop up the pension fund for city employees on retirement. That's on top of the $1.8 billion (with a "b") unfunded police and fire pension liability. Geezer bureaucrats are spendy to support.

But o.k., that's all stuff we covered last week. Today, let's focus on the next largest category of debt that's "secured by the general fund." After pensions, do you know what it is? Well, it's something called "Limited Tax Revenue Bonds (Visitor Development Initiative)," to the tune of $127,923,888. The $128 million borrowed for "visitor development" is said to be embodied in "self-supporting bonds."

From the bond sales document that the city recently released, we see that these bonds paid for the Convention Center expansion ($96.6 million), the Civic Stadium refurbishing ($29.655 million), and the performing arts center ($1.66 million). These bonds are all supposed to be paid off out of the city's hotel and motel occupancy and car rental taxes.

You have to wonder whether those taxes will really be enough to pay off all that debt. And even if they are, wouldn't it have been wonderful if the city had spent those tens of millions more wisely than on expanding a white elephant convention center and installing luxury boxes in a minor league baseball stadium? If the interest rate is, say, 4 percent, those bonds are costing us nearly $5.2 million a year in interest alone.

Moreover, you have to pay back the principal at some point. In the current fiscal year, the debt service payments (principal and interest due and payable) on that $720 million of debt come to around $59 million. That means that $59 million in revenues (mostly taxes, I suspect) that Portland collects will go right out the door to pay back money that the city's already spent.

It gets crazier as the decades roll on. In 2017, the current fantasy calls for mortgage payments of about $68.5 million. And in 2027, the debt service will be around $77.7 million -- all for stuff that will be more than 20 years old at that point.

And that's if Portland never borrows another penny. (Dream on.)

Party on, people. But sure to show the kids some other locations for them to grow up into, just in case.

Comments (10)

>you have to pay back the principal at some point.
Nope!! Your grandkids may have to pay it back at some point in time, but meanwhile, the politicians who foisted the debt on the taxpayers have spent their bloated salaries and collected their bloated pensions...and the problem will be left to the successor politicians to apply some stop-gap whitewash to a tax measure that places the burden on the owners of Single Family Homes (because they are the ones who can't vote with their feet).

Posted by FoolsGold | October 4, 2007 8:16 AM

Imagine what the borrowing and spending would be like if not constrained by M5.
It has always amazed me how the left wing demahgoues feel a responsibility to blame M5 on all things they cast as inadequatley funded yet hang in there with everything the local electeds do.

I can just imageine the response to my bringing up M5.
"Gee if we just repeal M5 we could fund and payoff everything Jack has posted".

And that somehow wouldn't be the same as Sam forcing a new tax on the city and/or county?

Posted by Ben | October 4, 2007 8:23 AM

I'm having an information overload moment. I get the sense that the actual purpose for a borrowing is secondary to the desire for some folks to have any semi-risk-free lending opportunity to government so as to avoid the capitalist risk of purely private investment. The most income-redistributive initiative might be to deny these lenders immunity from risk. (End the laughable trickle up economic model that ultimately results from the failed programs that are intentionally redistributive.)

Federal depression era work programs intentionally were White Elephants so that they did not disrupt private markets. This model for "job development" does not fit well in the context of municipal borrowing. It offers at best fleeting job opportunities that vanish without constant infusion of new White Elephant projects. It is like digging one's own grave.

Posted by pdxnag | October 4, 2007 8:59 AM

You noted in the comments from last week's post that you don't really care how much debt other cities are in -- that the whole country is living an unsustainable dream. But it seems relevant to me to look at some objective measure of what the debt SHOULD be in order to know how we're doing.

For instance, my personal debt is about twice my annual income, but almost all of that is mortgage, with a small 3-year car loan thrown in. That's it, no credit card payments, student loans, nothing, and I'm socking away every dollar I can for retirement and college for the kids. I think I'm in pretty good shape, but can you know that from looking just at my debt-to-income ratio? Or the per capita debt for every member of my family?

I think it would be fascinating if a Commissioner (Randy Leonard comes to mind) required the City's debt folks to put together an annual statement of debt as part of the budget process. They already do the work for bond sales, so why not put out a small, readable annual report? At least then we could all work from the same numbers and fight over how Portland compares to other cities.

Posted by Miles | October 4, 2007 10:14 AM

"put together an annual statement of debt"

Randy's eyes just glossed over, Tommy had a grand mal, Sam laughed, Eric said "what's that mean" and Dan said, "what's for lunch"?

Oh and Bob Caldwell said, "Oh you stupid little people".

Posted by Ben | October 4, 2007 10:45 AM

Ben's got it!
Never talk money spending to a politician, they don't get it.

Posted by KISS | October 4, 2007 1:05 PM

But it seems relevant to me to look at some objective measure of what the debt SHOULD be in order to know how we're doing.

The horse is dead. Stop beating it. I've responded to your concern, and a commenter has already done what you suggested. If you want more, please do it yourself.

Posted by Jack Bog | October 4, 2007 2:40 PM

I wonder how much it would cost the city to start picking up trash again. I think the "public-private partnership" with Waste Management isn't working very well, and would much prefer my property taxes to go to this vital city service, rather than to the petty cash accounts of Opus Northwest.

Posted by Ambrose Burnside, Ret. | October 4, 2007 3:05 PM

Pretty frightening isn't it, Jack? Yet you've still missed the worst of the story... Inquire about how much of that debt is in VARIABLE INTEREST, particularly Vera Katz' PERS swept-under-rug trick. What happens if the international community stops buying U.S. treasuries at the current rate of interest (the EU didn't follow the Fed's recent cut)? Then municipals bonds will index upward and Portland will have to pay even more. Taking advantage of the recent capital windfalls for the city and historically low interest rates to refinance these obligations didn't enter into Portland's recent Visioning Project, did it?

Posted by Ted | October 4, 2007 6:55 PM

Wait, personal debt twice one's annual income seems financially sound to (presumably) a voter? That in and of itself goes a long way to explaining the behavior of the elected officials, does it not?

Posted by Ambrose Burnside, Ret. | October 4, 2007 8:24 PM

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Thursday, October 4, 2007

Buying white elephants on time

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