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Thursday, May 29, 2008

Portland debt jumps toward $5 billion

A routine update of the clock in our left sidebar, showing the long-term debt of the City of Portland, reveals that the rate of increase in the city's bonded debt is quite a bit higher than we had previously thought. Figures given to us yesterday by the city's debt manager show that the city's long-term bonds and interim debt shot up by 11.02 percent between last October 8 and this May 1 -- from $2,610,486,126 to $2,898,272,916. On an annual basis, that's a growth rate of 18.9 percent.

Using (as we have) October 1, 2000 as our baseline, the city's long-term bonds and interim debt have grown at a compound annual rate of 6.22 percent (not the 5.18 percent we were using based on last September's numbers). Plugging in that 6.22 percent growth rate, the total long-term debt now stands at more than $2.9 billion -- not counting another more than $2 billion for the unfunded police and fire pension and disability system. The total is well in excess of $4.9 billion. That makes the municipal debt load for every Portland resident more than $8,600 -- nearly $34,500 for a family of four.

At the current rate, the city will hit $5 billion of long-term debt this summer.

And it's going to get way worse now that the spendthrift Sam the Tram is taking the reins as mayor. Fireman Randy says that he and his pal will be "very busy" next year, and indeed they will be -- racking up more debt.

It's clear that Adams either doesn't understand the city's financial picture or is unwilling to tell the truth about it. An alert reader sends us this audio clip of Adams on the Lars Larson radio show last week. In it, Adams states that (a) under current levels of taxation, the city's police and fire pension and disability obligations will be fully funded in 15 years, and (b) the city has a AAA bond rating. Both of these statements are demonstrably false.

The city's police and fire pension and disability system will not be fully funded in 15 years. The measure approved by the voters in November of 2006 (Measure 26-86) will not achieve this, and even its strongest backers never declared that it would. That measure puts newly hired police and fire officers into the state retirement system (PERS) on a funded basis, but officers hired before the measure took effect will still receive benefits paid for currently out of property taxes. That being the case, until every officer hired before 2007 (and in many cases, his or her surviving spouse) is dead, there will always be an unfunded liability in the system.

Our debt clock currently uses an annual growth rate of 6.5 percent for unfunded public safety pension and disability, which we think is conservative. We'll readjust it when official dollar numbers as of June 30, 2008 emerge. At that time, we'll also add in the newly calculated figure for the health insurance benefits that city employees enjoy -- that benefit is not included in the present $2 billion figure, but new accounting rules require that it be disclosed no later than the city's June 30, 2008 financial statements. (If the city has an idea what that number will be, it's not letting on.)

Moreover, the city's bond rating clearly is not AAA. The only way it has ever achieved such a rating in recent years was to have its bonds insured by one of two bond insurance companies, MBIA or AMBAC. Both of those companies gambled and lost in the subprime mortgage market, and now the city can't get an AAA rating, even with insurance policies from them. When the city sold sewer bonds last month, without insurance, the Moody's rating was Aa3 -- good, but far from a top rating. Aa3 is the bottom sub-tier of level Aa, which is itself below the Aaa rating of which Sam the Tram falsely boasts.

On and on we go. They'll keep borrowing, we'll keep clocking it. Vallejo, here we come.

At least the guys who build "luxury" apartments are happy. Go by streetcar!

Comments (16)

Again Remember that this Bond Debt to build new things that depreciate, does not include the unfunded liability of annual deferred maintenance which is racking up at $112 million a year, and according to the annual Financial statement CFAR, the total accumulated depreciation of assets $3.012 Billion in Portland. Normally you would set aside reserves or have a cash flow plan for how you would address this, and this would limit your bonding ability because unless you were accumulating reserves, you would need that bonding capacity to repair aging infrastructure. If the City were truly interested in Sustainability it would be living within its budget and taking care of its assets, not risking its financial stability.

I'm not trying to be a smartass here, but what exactly will happen to Portland if the city is forced to declare bankruptcy? I'm not talking about the procedure itself: I'm curious about what happens to all of the city-financed projects and various ego trips that are dependent upon city funds to keep alive. I'm also talking about something more significant than whether or not the fountains in SW stop running: would the first big cuts to pay creditors come from city services, or would the city just start selling off municipal properties to anyone with the cash? Would anyone involved with the city government be fired? Most of all, with the current run of Sam the Tram projects, would these be shut down immediately if bankruptcy proceedings start up, or would they be subsidized further because it's cheaper to finish them up than to leave them half-built?

I think that's the biggest issue that everyone's going to have to consider, especially since the rest of Oregon won't be able to throw a line to Portland if it goes under. When New York City was facing foreclosure in the Seventies, it was assisted both with federal funds and with increases in state taxes. We don't have the federal funds any more, and considering that East Oregon is making noises about becoming a separate state over its perceived neglect in favor of Portland and Eugene, a tax hike to bail out Portland is going to go over like a vegan dinner catered by Jeffrey Dahmer. I can guarantee one thing: if a Portland bailout ends up requiring a state sales tax to pay for it, a lot of people in both Oregon and Washington State will whisper "Let it burn" before that happens.

what exactly will happen to Portland if the city is forced to declare bankruptcy?

We'll find out a lot when Vallejo goes through.

One aspect that intrigues me is what happens to the unfunded pension liabilities in a bankruptcy. Oregon state law would likely say that the contracts with employees have to be honored, but federal bankruptcy law may trump state law on that question. In which case those police and fire officers may start to feel like the airline pilots, who didn't get the pensions they bargained for.

If I were in the police or firefighters' union, I would be fighting the Sam the Tram borrow and spend machine tooth and nail. But a deal's been made there -- a deal that taxpayers are probably going to regret for a long time.

Nobody has challeged the issues raised here. Why are no other outlets covering this situation?

Sad that Lars is so math challenged. Sad also that Sam, the scam could lie and twist the truth while Lars was dum-founded. Lying policol's and Dum media people; A city great, does not make.

"what exactly will happen to Portland if the city is forced to declare bankruptcy?"

I think payment schedules would get re-organized, so debt would be top of the list. Then CoP would start chopping from the bottom up so any new taxes going to street repair would be used to pay down debt. Cutting employees would be the next to last option.

Basically non-essential city services would be dropping off one by one as cash flow shriveled up.

Same old obsession. No context. No comparison to any other city. Just a mention of Vallejo in order to drum up the drama. Until you offer context, comparing the same situation in other cities, over history, you have no point.

Get a life.

Blah, if COP's finances tank, conservatives will point to our city as an example of how green building is incompatable with operating in the black. But we get our books in order, the rest of the world will draw a connection between the way our funky city does things and financial stability.

Nobody has challeged the issues raised here. Why are no other outlets covering this situation?

Because the city isn't going to go bankrupt. There is a difference between arguing that the city has too much debt for the wrong things -- a legitimate and worthy point -- versus arguing that they have too much debt overall. Just because the numbers are large doesn't mean they're TOO large.

For example, is it foolish for someone making $100,000 a year to buy a $300,000 house? Not at all. . . that's at least what you would pay in any large metro area, and a house over the long term is a good investment. But for a family of four, you've just saddled each of them with $75k in debt!

As for the bond rating, according to the city Moody's rates Portland's "unlimited tax general obligation debt" as Aaa without the use of bond insurance. Other debt, such as limited tax revenue or sewer or water bonds are often rated lower (although still with good bond ratings), and they often buy bond insurance to get a better rate. But when people refer to a city's "bond rating" they are generally referring to the rate they get on unlimited general obligation bonds.

Ah, "Miles" -- posting from his City Hall computer. Thanks for your unbiased views. You sound an awful lot like "torridjoe."

Moody's rates Portland's "unlimited tax general obligation debt" as Aaa

The city's unlimited G.O. debt is a tiny portion of its overall bonded debt. Something like $66 million out of $2900 million -- that's less than 2.3 percent of the debt. And the city hasn't issued that kind of bond in many years.

Just because the numbers are large doesn't mean they're TOO large.

How large is too large? As we've already explained on this blog, Portland's numbers are way higher than those in, say, Seattle.

is it foolish for someone making $100,000 a year to buy a $300,000 house?

It is if their $100,000 estimate of income is based on five lottery tickets they just bought. Much of the city's debt is built on the premise that real estate values -- particularly condo values -- will rise indefinitely. Oops.

No comparison to any other city.

At the risk of feeding a troll, I did Seattle.

We are in trouble compared to Seattle.

And you are done posting here. But thanks for letting us know that we are right on point and have hit a nerve.

You aren't kidding that you're in trouble compared to Seattle. Man, I knew things were bad, but I didn't know they were that bad. Thanks for the heads-up.

James, the situation is worse than that. It's not just how conservatives will note that green life is incompatible with financial stability. It's that Portland will be the punchline of a whole series of journalistic jokes along the lines of "Ever see what happens when you let hippies have a say in running a city?" It won't matter that other cities are run about as well or maybe even worse: just as how any valid criticism of the current Administration rapidly degenerates into "But Clinton got a blow job!", any valid criticism of bad civic planning and excessive community debt will degrade into "But Portland's screwed up, too!" That's a game you don't want to play, because you wear out your throat trying to explain why that perception is wrong, only to have it thrown back in your face again and again.

Miles sent me on a wild goose chase on one of the other strings. Thanks for Outing him Jack.

"For example, is it foolish for someone making $100,000 a year to buy a $300,000 house? Not at all."

I agree, however, your analogy misses a few critical points.

The house he's making pmts on has:
- Holes in the floor and driveway (like our roads) he can't afford to fix
- The toilets (our sewers) are dumping onto the lawn on rainy days and he ahs o cut lunches to pay for that
- There is a $100K minivan (read streetcars) parked in the drive that gets used about 5% of the time
- BTW, Dad decided an amusement park ride in the back yard (the tram) would be great to prop up the house value.
- Dad also insists that the landscaper must make a living wage with better benefits than Dad who pays the bills
Meanwhile, the kids go to school for what, say 3 months a year.

So, in sum, my issue is not with taking on debt, it is just pissing it away on non-necessities that is irksome.

I'm beginning to think that why no other outlets are covering this is because they can't grasp it. And maybe there is a little too much of media/advertiser/CoP cohabitation. Otherwise, Jack you make it understandable if you apply a little common sense and have a clear mind without an agenda like Miles. Thank you.

Maybe Peter Korn of the Tribune can write a succinct piece. He sure did a good job on the biotech issue in today's paper. But he didn't mention the $5 Million TIF taxpayer dollars spent on OHSU's Health Club for biotech (but not one biotech job); nor the $54 Million yet to be spent for biotech jobs in the SoWhat's budget, and the $13 Million already spent. Add that to the $200 Million from the state cigarette settlement and we have $263 Million for not one SoWhat biotech job.

And Kohler is wrong in saying he promised only 5000 jobs in SoWhat. He said before city council and in writing and to the media "10,000 biotech jobs". And then for him to claim he was including construction jobs in his tally is patently false. Kohler needs to be held accountable. Thanks Peter for half-way holding him accountable. Quoting him from any source about the 10,000 jobs would have been better.

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