Portland sewer debt climbs 21.63% over 13 months
As noted here yesterday, the City of Portland is going to borrow more than $550 million for its sewer system next week. And the sales document for the bonds (the "preliminary official statement") hit the internet yesterday -- just about the time we complained on this blog that it was well nigh time to release it.
Unlike lots of prior city sewer bonds, these are scheduled to be sold without the benefit of a bond insurance policy -- inevitably, in light of the fact that the big bond insurance companies have become so shaky in recent weeks that investors aren't much impressed by their policies any more. This means that unlike the AAA credit ratings that several prior Portland sewer bond issues have enjoyed, these babies are going to go off at substantially lower ratings. About $340 million in bonds, with a first mortgage on the sewer system, have been rated Aa3 by Moody's, and AA- by Standard & Poors. The other $214 million or so, with a second mortgage, have been rated only A1 by Moody's, and AA- by Standard & Poor's. There's more on the rating systems here for Moody's and here for S&P, but Aa3 is several notches below Aaa at Moody's; A1 is the next level below that; and AA- is several notches below AAA at S&P. Lower ratings mean higher interest rates. (The ratings on the new bonds are the same as the city's sewer bonds have had for a while, if they were uninsured.)
When the city sold a set of insured sewer bonds in early 2007 -- back when bond insurance still meant something -- it got rates of between 3.6 and 3.725 percent on money it borrowed over eight years. The terms of the new bonds will run up to 25 years, which will also tend to bump up the interest rates. The city says if it can't get the money at 6 percent a year interest or less, there will be no sale this time around. Keep in mind that interest on these bonds is exempt from federal and Oregon income taxes, and so buying a Portland bond at 6 percent would be like buying a corporation's bond at something like 8½ percent.
Of the $554 million of new bonds, $150 million will be used to pay off "auction rate" (adjustable rate) bonds that were issued in 2003. The interest rates on these have gone through the roof since the first of the year due to the fall of the bond insurance companies; the city is pretty much up against the wall to get rid of them. They're planning to use another $117 million of the new bond proceeds to pay off some older bonds, part of a large sewer borrowing back in 1998. That's $267 million of refinancing, leaving $287 million of new money to spend on the sewers.
It's interesting that the city is planning to pay off the 1998 bonds. According to this document, the interest rates on those bonds run from 4.5 percent to 5.13 percent. Given that the interest rates on next week's bonds could run higher than that, one wonders why the city would borrow now to redeem the older ones.
The new bonds are to be paid off solely out of sewer bill revenues, and so there isn't much in the offering document about the city's tax structure or, of greater interest to us, about its outstanding overall debt load. One might have thought that that information would be material to the purchaser of the sewer bonds, but the city fathers think otherwise. They attach the city's audited financials as of last June 30, and we guess they figure that's enough about the balance sheet.
Another topic one might have expected to see covered in the offering document is the proposed referendum this fall in which voters are supposed to decide whether they wish to have an additional $55 a year or so in taxes (or "user fees," even if you don't use it) tacked onto their sewer and water bills for street maintenance. If we were a prospective bond buyer who was supposed to be paid out of sewer bills, we might like to know about other items that are going to get piled onto those bills. If a bill is only partially paid, which charge will be treated as being paid first?
In any event, the information spelled out in the new document reveals that the city's debt continues to jump sharply. After the new sewer bonds are issued next week, the mortgages on the sewer system will stand at $1,476,925,000 -- nearly $1.5 billion. In March 2007, when another set of sewer bonds were sold, the tally was only $1,214,230,000. That's a 21.63 percent increase in 13 months.
Now, on our debt clock in the left sidebar of this blog, we've been increasing the city's long-term debt at an assumed rate of just 5.18 percent a year -- apparently too conservative an estimate. Perhaps we will have a better handle on the current overall debt figure when the offering document is released for the city's upcoming $50 million in new, long-term "urban renewal" bonds. That should be out in a week or so, and since property taxes are involved, a more comprehensive debt picture should be included.
Meanwhile, there's more sewer debt on the horizon as well. The city says that it will likely go to the well for another $344 million of long-term loans in 2009-10, and another $140 million in 2011-12. Between our sewer bills and our property tax bills, we'll be paying for the rest of our lives on the money we're spending now. Good thing we're spending it all wisely. Go by streetcar!
Comments (15)
Odds of that $55 in user fees being actually used to fix roads instead of debt repay = 0%
% of $20M/yr franchise fee of 1989 actually used to fix roads like Bud Clark said it would (thanks to Vera and Sam) = 0%
Lousy schools with good sewers and nice streetcars - Priceless!
Posted by Steve | March 25, 2008 6:31 AM
Much of the CoP sewer system is 90 years old (or worse) and the bulk of the water/sewer revenue increases are still in our future. The Big Pipe (while expensive) made precious few improvements to neighborhood feeder pipes and sewer mains.
Plus we still have to install Cryptosporidium treatment facilities (per SWA clean water regulations), which the Fireman says could exceed $500 million. You can bet the liars budget estimates will come on/about November 10th, so the voters aren't feeling too flustered when they're marking their ballots.
Cause PCC, PPS, and the County all want you to vote to increase your taxes, too.
Posted by Mister Tee | March 25, 2008 7:23 AM
What Steve said! Portland now has a really expensive stormwater collection system, but very old and corroding sewer collection system. We will be paying so much for the mortgage payments on the stormwater system, it is doubtful we will be able to keep up with replacing the decaying sewer system.
Posted by Frank | March 25, 2008 7:33 AM
The sewer system is much worse than the city, Adams, wants people to know.
The sewer system backlog makes the road maintenance backlog look like nothing. Many dilapidated lines are located in stream beds which are frequently leaking into the watershed Portland, Adams, brags about being a champion of. Where are the usual Audubon and other defenders of habitat. Have they been silenced with city and other grants? The cost of replacing these many miles of sewer lines will be enormous yet the funding to do so is being directed, by Adams, to shiny new stuff instead.
Adams and the council are the classic adolescent brats demanding more toys while paying no attention to the family needs.
Insisting the family has a budget surplus and more toys will boost family morale.
Add up ALL of the soaring debt and the real measurement of the deferred infrastructure upgrades and disaster is unavoidable, even with a total replacement of the city leadership.
Although it's in slow motion for now, the CoP chickens are coming home to roost.
Posted by James | March 25, 2008 9:13 AM
It seems you are the only person really keeping an eye on this issue, Bogdanski.
Why don't you run for city council?
Posted by Qwendolyn | March 25, 2008 9:36 AM
Jack,
Portlanders are in your debt for researching and digesting these debt-related issues and reporting on them in terms that an ordinary person can appreciate. Many thanks.
Posted by Allan L. | March 25, 2008 9:54 AM
Jack, muchos kudos for wading into that stuff. I spent about 20 minutes on the Unlimited Tax GO & General Fund disclosures and didn't feel so well. The gist of most of these is that the bond offering is made with the obligation of the City to use taxes or general funds (that old shell game), and the City Council can approve such taxes at will. I don't understand all the laws and rules behind this, but it sounds as if the bond holders can compel Portland's elected officials to implement taxes, thus preventing default risk. Where that tax obligation fits in with the bond insurer's obligation to cover default, I'm not sure. Not my area of expertise. What happens if a bond insurer becomes insolvent? The holders of these bonds would presumably sue forcing City Hall to either raise taxes (regardless of what the people think) or rob from other budget items. It's a potentially ugly situation.
Posted by Ted | March 25, 2008 9:59 AM
City Hall already is robbing from other budget items. And it's getting uglier every day.
As far as some outsider like Jack running for Council???? Things didn't get this messed up because no one ever thought of running against the current long term regime.
It's Mission Impossible to succeed.
Posted by James | March 25, 2008 10:20 AM
Infrastructure investment and maintenance to standards shoulda coulda woulda been done all along, instead of dealing with it as a chunk when it floats to the surface ... if the federal 'fess pool was not perennially 'mired' behind some dam of military-industrial complexifying extinctification.
End the Pentagon. While it is still younger than a human lifetime -- it's been a billygoat's bluff only since 1947, 60 years, retire it. Without that 'mire,' these civilian infrastructure maintainances are affordable, and rebate back from today's tax dollar.
Woulda coulda oughta but didn't, so now this and now that big-ticket item. HOWEVER, these 'items' must be public-worked TRANSPARENTLY, with informed consent. And the despots in office, and the bullshooters in the bureaucracy are NOT informing us. In advance. In good faith. Execute them ... what Jack said.
In the particulars of this project, here's today's dump in the news of the low-down beneath the throne. Sedatives and Sex Hormones in Our Water Supply, Amy Goodman, Democracy Now!, March 25, 2008.
(What's to add, the headline says it all? If anyone breathes a word about Bull Run, the entire US population is moving here. Hey, maybe they'd defray the bond payments.)
And, about those 'bonds' bombs. Again, Jack, and all the funtime fie-nancial phonies and gotta-be's reading along here -- Great Work, Jack, btw -- the Humpty Dumpty economy was intentionally propped up on the wall (of the Fed.Reserve 'gated community'), and is intentionally pushed off it; the perps are identified here: Speculative Onslaught. Crisis of the World Financial System: The Financial Predators had a Ball - Financial Tsunami, Part V, [w/LINKS to Parts IV, III, III, I, &tc.], by F. William Engdahl, Global Research, February 23, 2008.
Execute them, although they don't like being executed. "So?"
Posted by Tenskwatawa | March 25, 2008 10:25 AM
It's pretty tough when the sewer breaks down and you must "go to the well".
Posted by genop | March 25, 2008 10:59 AM
"Sedatives and Sex Hormones in Our Water Supply"
Dammit, he had to throw Liars into the conversation again!
Posted by Steve | March 25, 2008 12:44 PM
Well, at least they won't be able to increase our taxes to pay for water and sewer.
Randy says we have some of the cheapest water rates on the West Coast (thanks, Bull Run). It's our sewer rates that are going through the roof, and the rising fees/surcharges have only just begun.
But you can't buy one without the other, unless you have a septic tank (which is probably more and more rare within City Limits).
Posted by Mister Tee | March 26, 2008 6:50 AM
"But you can't buy one without the other"
If all you own is a golf course and have 99% irrigation as your water use, you can un-tie the sewer rate from your water.
Posted by Steve | March 26, 2008 12:43 PM
Excellent job!
http://shopyield.com/blog/2008/03/28/citizen-watchdogs/
Posted by Cate Long | March 28, 2008 12:54 PM
Check this out... you can get amazing data on muni debt for your city...
http://emma.msrb.org/AboutEmma/Overview.aspx
Posted by Cate Long | March 31, 2008 9:51 AM