City of Portland debt is rising faster than condo towers
Part of what prompted our ongoing study of the City of Portland's long-term debt was our perception that the debt was growing more rapidly than ever before, and that it was outstripping population growth within the city limits. Now that we have a pretty good grasp on the current debt situation -- $4.4 billion of long-term debt, and climbing -- it's as good a time as ever to look at past years and confirm or disprove this perception.
As a comparison measure, we downloaded the sales document -- the "preliminary official statement," or POS -- from the city's early 2001 bond offering, when it borrowed almost exactly $100 million to expand our white elephant Convention Center, against the clearly expressed wishes of the local population. In that document, the city disclosed the debt it had outstanding as of January 1, 2001, pretty close to seven years before the date of the most recent POS, which we have been studying over the last 10 days or so.
The comparison of the two reveals these figures:
The increase in all categories of long-term debt is stunning. Seven years ago, the city's long-term bonds and "interim" financing (which is later turned into long-term bonds) stood at around $1.8 billion. Today, they're at roughly $2.6 billion -- an increase of 42.41 percent over seven years, or a compound growth rate of 5.18 per year. The city's unfunded police and fire pension liability has grown even more frighteningly. The figure the city gave at the end of 2000 was $976 million, compared to today's $1.8 billion -- an increase of 84.63 percent over seven years, or a compound annual growth rate of 9.16 percent.
During these seven years, the city's population has grown from 513,325 to 562,690 -- a compound annual growth rate of only 1.32 percent. Which means that the debt per resident has gone up by a compound growth rate of 5.27 percent a year.
Put another way, despite the growing population, the average individual Portlander's share of the city's long-term debt, expressed in dollars, is growing at a rate of 5.27 percent annually. It's gone up by 43.3 percent over seven years. If your credit card debt was $10,000 in 2000, and now it's $14,330, how would that make you feel? More and more of what we pay in taxes is going to pay principal and interest on money that's already been spent, and as a consequence less and less of what we pay is available for the ongoing needs of running and maintaining the city we have.
Here is a comparison of the total long-term debt on the dates of the two bond offerings:
The rapid growth of the debt -- and the City Council's blindness to its utter lack of sustainability, as indicated by the proposed east side streetcar expansion, continued folly in the SoWhat district, and the coming debacle known as North River District -- is especially troubling in light of the awful reality in the condo market, outlined in today's O. Much of the city's "urban renewal" debt -- $600 million, and about to increase by another $100 million or so -- is supposed to be paid out of the property tax "increment" that arises from condo development and rising property values.
Problem: The condos aren't selling any more; suddenly, their values are dropping, not growing. Not only does this mean that the projected increases in property values on which the borrowings are based may not be forthcoming, but it also indicates that some of the taxpayers who have invested in the condo developments may find themselves in such dire straits financially that they won't be so prompt in paying their taxes. (Buildings don't pay taxes, their owners do -- if they can.)
Can you smell a perfect storm? The people who own the city's bonds may very well get paid in full and on time -- hence the city's favorable "bond ratings" -- but what kind of city will Portland be when far too much of its tax revenues is going out to pay off old debts, and not enough is available for ongoing basic services?
The taxpayers of Portland are constantly being told that all the public dollars being siphoned off to pay for infrastructure, streetcars, and an aerial tram [rim shot] in the new condo jungles are actually "investments." That may be true, but they are already looking like investments in overpriced dot-com stocks. And unfortunately, they were purchased with borrowed funds. When the margin calls come in, somebody's fortunes are going to be ruined. Guess whose.