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Thursday, April 3, 2008


The City of Portland's bond auction this afternoon appears to have been a hit. The best bids were 4.3675% interest for the $340 million of first lien sewer bonds, and 4.6087% interest for the $214 million of second lien sewer bonds. Since the interest on the bonds is tax-exempt, the equivalent rates for taxable bonds would be much higher. Assuming a 40 percent combined state and federal corporate taxrate, the first lien bond rate would work out to around 7.28%, and the second lien bond rate to around 7.68%. Not a bad return for the investors (folks like Citigroup and Merrill Lynch).

Meanwhile, the city's issued the offering document for next week's sale of "downtown waterfront" urban renewal bonds, to the tune of another $50.2 million. We were hoping it would include updated figures for the city's overall debt load, but it appears on a quick first reading that that information isn't included for prospective investors in these bonds -- we suppose, because the source of repaying these bonds is limited to the downtown urban renewal area's property taxes.

In any event, the new bonds are rated Aa3 by Moody's. In the past, bonds for this urban renewal zone were rated much higher, at Aaa, because they were insured. Now that the bond insurance companies are toast, that rating boost is no longer available. The new bonds will bear taxable interest for federal tax purposes, and so look for rates much higher than those being paid on the sewer debt auctioned off today.

The proceeds of the urban renewal bonds will be used to pay off $14.4 million on an existing line of credit -- money that was borrowed from B of A a while back -- but another $34.4 million or so is identified as "new money," including $4 million for "parking development." With the new borrowing, the "downtown waterfront" district will be in hock in excess of $100 million.

Finally (for now), the city still hasn't got a number to show for its actuarial liability for health insurance benefits for its retired employees. The city will be required to compute this for its fiscal year ending June 30, 2008, and it keeps telling the Wall Street types that it has an actuary working on the number, but it sure is taking a long time for that figure to see the light of day.

Comments (15)

So this is TIF financing? ANy statement on what happens when there is no "I" in the TIF?

I mean the base prop tax rate doesn't pay these, the increase in valuation pays the bonds. So if prop tax assesed value doesn't go up due to a bazillion condos being avaialble for the next 10 years, how exactly do thes get paid back?


Are you sure that Citi and Merrill hold munis in their own accounts? I thought they are in the business of reselling them to investors?

If unsold bonds are "inventory" to the underwriters, it's unlikely to be considered a desirable holding on their own balance sheets. Particularly given the recent emphasis on maintaining cash liquidity during a credit crunch.

Given the unlikely possibility that ratepayers decide to live without water/sewer services, it appears that vacant homes are the primary risk to revenue bonds (or bad billing/collections management).

I'd rather have Portland ratepayers as a debtor than the U.S. Government or State of California.

As long as AV keeps rising on existing properties in the UR, there is TIF. The bond buyers know that, and are probably counting on that alone as the cash-flow stream for repayment of the bonds.

If the earthquake comes, that may not be such a good bet.

I am breathing as in sleep with a rough hoarse noise due to vibration of the soft palate.

This is like watching a fan dance.

Yes as Frank said all property assessed value and taxes go up every year.

Most residential property is automatically increased 3% as that is the maximum allowed. Commercial property similarly.
Add in new construction, renovation and other typical changes and the average property tax increases for the region is 5% per year. That's without any Urban Renewal TIF schemes.

The TIF scam tells the public the said project or plan is a pay as your grow & pay for itself funding method.
It's a bald faced lie. Pick any district. With SoWa the plan calls for 130 acres of new development over 20 years. But the SoWa (North Macadam) UR TIF district consists of 409 acres. Meaning every regular yearly property tax increase for all 409 acres, since 1998, goes not to basic services but to pay for the big plan. With this particular UR plan running wildly over budget it will likely be 35 or more years before the mounting debt is paid and the property taxes return to the basic services long starved by this scheme.

Now multiply this out to cover the 12,000 acres of UR districts city wide and the problem is severe. Then realize the expansion and increase in TIF debt spending increases faster than any portions return to the taxing jurisdictions and you'll know that TIF is debt servicing in perpetuity.

Every elected official in sight has contributed to the public deceit this funding mechanism thrives upon.

Districts are regularily extended in size, expanded in time and borrowing capacitites are re-calculated higher to allow more debt spending.

New UR development does not returm new taxes that never would have happened without the public subsidies. Theres just more spending and grwoing debt to be serviced by property taxes.

It's important for people to understand the realities of TIF and know the official stories misinformation.

Thanks to my job at Portland Public Schools, I've gotten a recent education in urban renewal financing as they consult with local jurisdictions affected by tax increment financing.

There are actually two types of urban renewal areas in Portland -- three formed before Measure 5, 47 and 50 changed the landscape of Oregon property tax law, and the other 8.

Those eight URAs, including the River District that includes the Pearl, operate just as Steve and Frank say. The taxable assessed value (TAV) going to pay for all local government jurisdictions (city, county, schools being the biggest taxers) are frozen. The amount of taxes collected on the increase in TAV -- the increment --goes to pay off the PDC debt that financed the city urban renewal projects.

But the oldest three, Downtown Waterfront (1974), South Park Blocks (1985) and Airport Way (1987), operate differently. There are four components to financing in those:
1)The base is frozen and goes directly to the local jurisdictions. That's the same.
2)Taxes on another flat and unchanging amount of the TAV go directly to the PDC.
3) A set amount of financing comes from a citywide urban renewal tax to help pay off these old districts. That's why, for example, I personally paid about $1.70 per $1,000 on my home property taxes to "urban renewal" even though I live nowhere close to an urban renewal area.
4) Finally, in these districts, revenue from the growth in taxable assessed value DOES go to local taxing jurisdictions.

So even though the Downtown Waterfront urban renewal area will be 50 years old by the time it finally pays off its debt in 2024 (that's with the new $50 million), schools, the county and city don't forgo as much revenue as they do with most urban renewal districts. That complicated financing is also why those older districts can take longer to pay off. And it's why local jurisdictions lose future revenues when properties are shifted from old URAs to new ones -- as in the proposed Waterfront and Park Block URA shifts to the River District.

I hope I got that right (it's way complicated). And enough boring tutorial for one evening. Not everyone finds this as interesting as I do. . . .

Sarah Carlin Ames

Mister Tee,

Citi and Merrill could hold the bonds in inventory, but will more likely place them with institutions and retail.

Don't worry. If they go bad, we'll all hear from whoever actually winds up owning them.


Your explanation (of little harm done to schools funding by the Pearl and SoWhat) only holds true if you believe that NO development would have been possible inside the URA without benefit of subsidies.

In fact, large parcels of prime real estate within walking distance of downtown would have been developed without the URA and TIF scams (thereby leaving their rising property values on the tax rolls). The Urban Growth Boundary makes these close in parcels even more desirable.

The only tangible advantage of the URA/TIF scheme is their ability to allow politicians to take more credit for these projects than they deserve (after funneling projects to their preferred developers), and to provide a funding mechanism for the Streetcar Mafia.

Mister Tee,

My comment about local taxing jurisdictions not losing a lot to urban renewal districts referred ONLY to the old-style districts, such as Downtown Waterfront and South Park Blocks, where the incremental taxes do go to schools, the city, county etc.

The PDC and others can debate forever about how much development there would have been "but for" their urban renewal projects . . . . but there is NO question that local governments and schools forgo much more potential revenue as time goes on in the newer districts such as North Macadam (SoWa) or the River District (the Pearl).

The proposed expansion of debt in the River District, for example, is expected to mean well over $100 million in forgone Portland Public Schools property taxes, for example (final figures aren't calculated yet). The direct hit to local schools is far less because roughly 70 percent of our local school property taxes go to the State School Fund and are divvied up statewide. If most of the money would have beefed up the state budget for support for all Oregon schools, there's not as big an impact on PPS operations.

Sarah Carlin Ames

"That's why, for example, I personally paid about $1.70 per $1,000 on my home property taxes to "urban renewal" even though I live nowhere close to an urban renewal area."

Oh good, we all get the opp to pay for empty condos in SoWa!

"4) Finally, in these districts, revenue from the growth in taxable assessed value DOES go to local taxing jurisdictions."

AFTER it services these bonds that just got floated. If you look at SoWa expenditures pushing $500M (after I-5 access and riverfront), forget about upside out of that disctrict.

"$100 million in forgone Portland Public Schools property taxes, for example (final figures aren't calculated yet). The direct hit to local schools is far less because roughly 70 percent of our local school property taxes go to the State School Fund and are divvied up statewide."

You miss one thing - $100M is gone out of the school system to subsidize developers of $500K condos in the River District. Does it matter if the hurt gets spread state-wide?

I think part of the reason these are complicated deals is to perform some sort of ledgerdemain on the public. I must give Mr Bog some props for wading thru all the smokescreens that get set up.

When one compares the old UR-TIF portion returning to taxing jurisdictions to the newer far greater abuses it's almost insulting to even bring up the old ones. And it serves only to cloud the enormity of the UR/TIF addiction and abuse.

More important is that people grasp the ongoing misrepresentation by public officials regarding TIF. The expanding Peter to pay Paul shell game and reckless misappropriations are malfeasance.

The lack of audits, accountability and consequences makes this fiscal quagmire a mess where heads should roll.
Yet they are instead re-elected.

How is that?


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