Another quiet little City of Portland credit card
One of the most interesting finds in our ongoing exploration of the City of Portland's massive debt load has been the lines of credit under which the city has quietly borrowed huge sums of money for use by the Portland Development Commission. We spotlighted the $277 million line of credit from Bank of America for urban renewal projects here; we blogged about using an additional line of credit for PDC computers here. And the SoWhat District streetcar line of credit, which couldn't be paid off on time and had to be "renegotiated" back in June, caught our attention here.
But it seems that the PDC isn't the only city agency that wanders out quietly borrowing money on "temporary" lines of credit. The city's transportation bureau, known as PDOT, is also in on the act -- and those hotsy-totsy solar-powered parking meter robots out on the central city streets are behind the latest line of credit borrowing.
The PDOT angle came to our attention in connection with the recent audit report on the solar parking meters. In the midst of discussing how these gadgets are now out of warranty and will probably need serious maintenance attention in the future, the report noted that the city is planning to sell the meters to a private company and then lease them back. The private owner will take care of the maintenance, and the city will pay them for doing so as part of the lease.
We know something about sale-leasebacks, and usually they're pretty much the equivalent of slapping a mortgage on whatever goods or property are being sold and leased back. In this case, the "owner-lessor" will pay the city a chunk of dough up front, and the city will pay it back, along with a nice rate of return on the investment, over a period of years. Call it a sale-leaseback of the meters, but depending on its terms, it's likely going to wind up just another equity loan against city infrastructure -- of which there have been far too many.
But that's not what most caught our eye in the report. That honor went to this passage, in which PDOT Director Sue Keil discussed the way the city has been financing "upgrades" to the parking meters. She wrote:
Never having heard about the PDOT line of credit before, we wrote to the city's debt manager, Eric Johansen, and asked about the deal. He responded:
The City has a tax-exempt line of credit through Key Bank that funds a variety of transportation projects, including the parking meter upgrades. The non-revolving line of credit is in the amount of $13.5 million. To date, about $9.1 million has been borrowed and subsequently paid off. An additional $2.6 million has been borrowed and is currently outstanding. Finally, $1.8 million has not been drawn on the line.It shouldn't be surprising that a city that's drunk on debt has eight-figure or nine-figure credit cards floating around in its various bureaus. The only thing that's surprising about the situation is the fact that the populace either hasn't thought, or doesn't care, about the implications of all this borrowing for the city's future. Oh well.
PDOT drew a little over $5.7 million on the line between June 1, 2005 and June 29, 2006 to reimburse itself for previously incurred expenditures relating to the parking meter upgrades. These line of credit draws were paid off in their entirety by July 3, 2008.
As the line of credit was a direct placement with Key Bank, there was no official statement or other disclosure document prepared for the transaction.
The interest rate on the line of credit is variable. Currently, we have selected a rate option of Prime minus 15 basis points, multiplied by 65%. Based on today's Prime Rate of 5.00%, the rate on the line of credit rate is 3.15% ((5.00% - 0.15%)*65%).