Buying white elephants on time
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.