Portland pension liability may jump $400 million overnight
It's a heck of a time to be borrowing money, but the City of Portland is back at the Wall Street well, looking to borrow more than $15 million to fix up and rebuild a few fire stations. These will be "general obligation" bonds -- meaning the city agrees to pay in all events, come hell or high water -- and if they don't get a top rating from the
trained bunglers brilliant analysts at Moody's, that will be big news.
But rating aside, the sales document for the new bonds contains a startling revelation about the city's unfunded liability for police and fire pension and disability benefits. As regular readers of this blog know, the last time the city estimated this unfunded liability, as of June 30, 2007, it stood at about $1.9 billion. Projecting the normal rate at which this amount has grown over the years, and adding in around $90 million of health care subsidies for retired city workers, our debt clock puts the frightening number at nearly $2.2 billion as of today.
But as it turns out, that estimate is way low, because the city's about to "restate" the police and fire pension liability at a much higher figure. The bond sales document explains:
As of June 30, 2007, the City’s actuary estimated that the unfunded actuarial liability of the FPDR Fund was $1.9 billion. That liability was calculated using a discount rate of 6.04 percent. The City has been reviewing and revising the discount rate and assumptions utilized in the calculations of the actuarial valuation, actuarial accrued pension liabilities, and net pension obligation, to match more closely the funding and investment returns that could be achieved given current economic conditions. In 2005, the FPDR Fund’s actuary used a discount rate of 6.63 percent to value the FPDR Fund, and in 2006 the FPDR Fund’s actuary used a discount rate of 6.04 percent. Based on discussions with the FPDR Fund’s actuary, the City may further reduce the discount rate used to value the FPDR Fund liabilities to a rate of between 4.5 and 5.0 percent. This change is projected to result in an increase to the unfunded actuarial liability of the FPDR Fund of between 13 and 20 percent. Any such change is expected to be reflected in the City's June 30, 2008, financial statements currently being finalized.If we throw, say, an additional 18.25 percent onto the prior projections, the unfunded liability is more like $2.6 billion than $2.2 billion. Which means that the prior accounting was $400 million off. With a stroke of the pen, that's roughly another $700 in present value -- essentially another $700 on the credit card balance -- for every man, woman, and child who lives in the city. (The total city debt would sit at about $9,600 per person, and be heading toward $10,000 fast.)
Even if every police officer and firefighter in the system quit working today, the city would have to put $2.6 billion away in today's dollars to be sure there was enough to pay eventually all the pension and disability benefits that it already owes them all. Keep in mind, there has been no money put aside to pay this debt -- nada. It's all going to be paid off with future property taxes. Have a nice day, and remember, go by streetcar!