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This page contains a single entry from the blog posted on November 19, 2009 3:47 AM. The previous post in this blog was Shunned by BlueOregon. The next post in this blog is Wii pray to the Lord. Many more can be found on the main index page or by looking through the archives.

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Thursday, November 19, 2009

Portland dusting off the plastic for another binge

The City of Portland hasn't staged a bond issue in a while. The whole rigamarole in which the bureaucrats publish a formal offering document and go out and borrow millions from some bank or other robber baron outfit -- the last one of those that I've seen was way back in July. That was when the city borrowed about $27.8 million to help the inadequate cash flow in its cancerous police and fire retirement system.

Four whole months without running to Wall Street for another eight-figure fix? My goodness! The city's long-term indebtedness appears to be stalled at a mere $2.9 billion!

But don't you worry, debt fans. On closer inspection, it becomes clear that the city's borrowing machinery is still in good working order, and we'll be cracking the coveted $3 billion level in no time.

There are several reasons for this prediction. First, although I'm not the world's greatest expert in this area, I think that the lawsuit over the city's abuses of the "urban renewal" processes was a big part of the temporary debt slowdown. And that lawsuit has now been bought off. Indeed, the big homeless hotel and spa down by the Greyhound station, which the lawsuit so famously stalled, is going to have its groundbreaking tomorrow. This is confirmation that a big obstacle to further reckless borrowing has been removed.

Second, don't think that the city can't slither out and borrow tens of millions just because it hasn't gone through the formal bond process. As we've highlighted on this blog in the past, the city has several sizeable letters of credit outstanding, and when it needs dough without a lot of hoopla and public process, it just draws on them. No muss, no fuss, no City Council discussion, no public vetting of what the money's being borrowed for. Eventually, the city pays off the line of credit with permanent bonds, but by that time the money's been spent, and as a practical matter, there's no way to say no to the bonds. So much for public input.

And since the first of the year, the city has been tapping those hidden lines of credit with great gusto. According to figures we received earlier this week from Eric Johansen, the city's debt manager, the outstanding balances on the lines of credit increased by nearly $21 million between January 1 and November 1. The breakdown of where it went is here; the biggest line items are $10.1 million for the city's "enterprise business solution" computer system (from all appearances, a classic bureaucratic money pit), and another $5.3 million for whatever is going on with "urban renewal" out in Lents.

Third, there are going to be some additional bonds sold between now and year-end. According to Johansen, "[t]he City expects to sell about $19 million in limited tax revenue bonds in December for the Public Safety System Revitalization Project and the Enterprise Business Solution Project (financial system)." Cha-ching. Not to mention the permanent financing for the homeless tower; that's going to involve another $36 million mortgage. I presume that those bonds get sold next spring; in the meantime, we tap another line of credit, I guess.

Finally, there's plenty of new debt on the horizon for 2010 and beyond. The city recently announced that it's looking for a new consultant who will certify the "feasibility" of new "urban renewal" borrowing. This consultant will apparently be hired to swear on a stack of IOUs that building more junk apartments will sufficiently jack up the tax base that big property tax dollars can be corralled in the future to pay off money that's being borrowed now and handed to Fireman Randy's real estate pals.

Anyway, in the document requesting bids for that consulting gig, here's what the city said about the looming "urban renewal" credit card spree:

Is everybody o.k. with upping the ante like this? At our house, when we start running low on cash for basics, we go easy on the toys for a while. Not in Portland. No, sir. In this town, when in doubt, you put it on plastic -- it's like getting stuff for free.

No wonder the city's looking for a new CFO. A debt workout specialist would be good -- pretty soon, we're gonna need one.

Comments (18)

About the only thing positive is that if they sell it now vs. two years from now it will be at a lot lower interest rate probably. Of course, they may just burn thru the credit line and have noting left to borrow anyways in two years.

That means they'd have to say no to things that they really, really want. Like whatever the civic equivalent of Malibu Barbie's Dreamhouse is.

And, if you ever decide to do a "your share of the national debt" ticker, you're going to have to get a wider web page.

Those stories you linked to on the Silverdome mentioned that Michigan has some kind of law where the municipalities can go bankrupt and the state appoints a receiver to run the show for a while, slashing services and salaries, etc. etc. Does Oregon have anything like that?

The PDC survives off of borrowed money. They pay their bills and salaries by line items in every Urban Renewal budget.

In just one 5 year budget in SoWa the PDC took $18 MILLION under line items "administration" and "management".

That was borrowed money.

Property taxes from the greater 411 acres of the Portland Real Estate SoWa encompasses will be skimmed to repay, with interest, those millions to run the agency.

How many other public agencies rely pon borrowed oney to pay their bills?

Now times that many times over and you see the ponzy scheme the PDC and Urban Renewal is.
They must generate new UR schemes or fall delinquent and become unable to fund themselves.

Some would call the entire operation corruption. They call it planning and economic development.

What? You don't like the Homelessland™ Theme Park they're building in Old Town/Chinatown?

It would be one thing if urban renewal borrowing created a much larger property tax base like the Pearl. At least the property tax base there increased more than the sum of money put into improvements. You can debate whether it all would have happened anyway, and whether subsidies chill normal development, but recently, you don't even have a 1:1 value increase. Instead, the value of targeted property increases by only a fraction of the money spent to improve it. The Oregon legislature needs to step in to prevent other Oregon cities from exposing themselves to the same tragic fate. The current urban renewal scheme enables good people, with decent ideas, to make decisions that have awful consequences whenever they act outside times of double-digit appreciation.

Not mentioned is the $11 million in bonds that the city plans on selling to fund the renovation of PGE Park for Major League Soccer.

Under federal law, that will require the city to report all "material facts," including the fact that PGE Park, even with the renovations being planned, cannot meet -- or even come close to meeting -- minimum MLS requirements for restrooms, seating, and food concession stands.

Here's the latest bit of news. On Monday, I was finally able to obtain exact figures on the number of existing restrooms facilities at PGE Park. And comparing those figures to MLS minimum requirements, the deficit would be 254 toilets/urinals!

If the city doesn't report all material facts, it is the city's elected officials who would be liable, and first in line for prosecution. And that could potentially lower the city's bond rating, and make all of the city's borrowing more expensive for years to come.

Faced with that choice, the city is now claiming that those MLS requirements are suddenly in the process of being "revised," and that those revised requirements won't be issued until January at the earliest.

So, what ever happened to all of those critical construction deadlines?

All of these delays make me suspect that the city is now looking for a way to save face, and back out of this deal.

As far as the feasibility consultant, the city is setting itself up for a situation where so many individuals are involved in the bond hype that default will never be an option. This indicates that any risk premium is inflated, since there will be many people who will put their own interests over those of the issuer, and will do anything to avoid default. Essentially, whoever buys bonds with inflated risk premiums is getting free money, so it would be interesting to see who buys these bonds.

The image I got reading this post was one of those supermarket contests where everyone runs frantically around loading their shopping carts as fast as they can 'til the time is up.

"Last Date to Issue Debt." The fact that the bureaucrats are so fixated on this, even when they don't really know what they're going to buy with the money, is hysterical.

"The PDC survives off of borrowed money."

Heck, you can say that about the US Govt, Soc Security, etc.

"The PDC survives off of borrowed money."

Heck, you can say that about the US Govt, Soc Security, etc."


Sure but that's different. The PDC is an unneeded local government agency operating covertly off of a borrowed budget. One which then siphons away school, library, park, police, fire and social service General Fund revenue to repay, with interest, their borrowed compensation packages.

All while at the same time perpetrating a tax funded, also borrowed, perpetual campaign to decieve the public and elected officials.

Without audit, accountability or consequences.

Heck, you can say that about the US Govt, Soc Security, etc.

You can say anything, but it will reflect poorly on you if it's a blatant lie. Social security has run massive surpluses for years, and continues to do so even in the worst economic crisis of its history.

"continues to do so even in the worst economic crisis of its history."

From a cash flow perspective, SS will have more outgo than income for the next couple of years. As far as what a surplus means, I'd love to see the balance in that account (if it exists.)

...only because craven politicians continue to steal out of the SS pot. Remember the "lock box"? The guy who was against it stole the presidency, twice, and the raiding commenced forthwith. Get your facts, Dude. Social Security, like universal health care, is one of the foundations of a civilized country, and a very good idea.

"Social Security, like universal health care, is one of the foundations of a civilized country"

Calm down. The original comment was PDC ran off of borrowed money. I thought I was being somewhat jocular by drawing a parallel to most government operations running on borrowed money like Social Security. My assertion being that since there is no "surplus" sitting in an account, then that would be borrowed money being used for payouts. I meant to pass no moral judgments.

My most sincere apologies.

It's pathetic that we can all agree and applaud Jack for pointing out that the local government acts irresponsibly by using borrowed funds to fund ever expanding programs with very limited benefits, ditto for the funding of light rail / street cards, but whenever anyone raises the same argument regarding the federal government implementing a huge health care bill using borrowed money or higher taxes or phantom savings based on "elimination of fraud and waste."

And you want to bitch about the "tighty righties" being fiscally inconsistent?

Why do the major media in Portland never cover this stuff? Too lazy to do the in-depth analysis? No, The Oregonian has shown it's capable of good data-mining with the recent stories on PERS and the Lottery funding schools on the backs of the 10% of hard-core Lottery players. Too afraid of offending and losing City Hall sources? No, Willamette Week has shown it is capable of biting the hands that feed it.

I admit it can be eye-glazing stuff to anyone who's not an accountant or policy wonk (or professor of tax law). And it doesn't make for compelling radio or TV.

But this is real money with real consequences. Should the city load up the credit card -- encumbering the incomes and revenues of wage-earners and employers with taxes now and for the next 5, 10, 15 or 20 years (not to mention getting in bed with the slick Wall Streeters that broke our economy) -- to build projects that are mostly downtown and that mostly only benefit a small percentage of Portlanders?

Maybe it should, and maybe all of those investments will pay off someday. But we should be having a public conversation about it. Maybe readers and viewers don't care, but the media have failed in their duties to tell them why they should care.


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