City will renovate PGE Park first, borrow to pay for it later
Here's a classic City of Portland weasel move, and of course it fits right in with the PGE Park stadium boondoggle, which has been marked by one strong-arm maneuver after another. The city isn't going to sign the long-term bonds for the city's $11 million share of the construction costs for the new soccer grandstands until after all the construction work is finished! It's going to go out in the near future and borrow the money on a short-term, temporary line of credit, and not enter into the permanent financing arrangements until after the renovation is done.
In other words, Portland taxpayers won't get to see (or pass on) the terms of the mortgage until after the stadium project is finished. All we will know when the city forks over the construction costs is that the final mortgage is apparently going to be some sort of subprime "zero coupon" bond deal, and the Paulson family will be finding us some of their pals who will buy the bonds (i.e., make the permanent mortgage loan). In the meantime, the city's putting $11 million on the equivalent of a credit card.
This latest twist on an already misguided transaction is spelled out on the next-to-last page of this document:
The Spectator Fund will contribute $11.9 to the capital cost of the project through a combination of cash and a future bond issue. Initially, the City's share will be financed through a line of credit until the project is finished in the spring of 2011.How much leverage will the city have when the time comes to sell the bonds, which are likely to be far below prime? None -- less than none. The taxpayers will no doubt be taking it in the shorts -- the soccer shorts.At that time, decisions will be made on the amount of the cash contribution and the balance will be financed through a bond sale. The debt service for the new bonds will be paid for from revenues in the Spectator Fund.
Will the opponents of the project ever get a chance to put the bonds up for a public vote? They're supposed to have that opportunity, if they can collect enough signatures to challenge the borrowing. What if the stadium's finished but the permanent bonds fail in an election? Will the city be in default on the line of credit? And is there going to be any chance to petition for a vote on the interim line of credit?
Particularly given the wildly unorthodox terms that the permanent bonds are likely to bear, this is outrageously irresponsible conduct by the City Council. Just as the no-bid nature of the construction deal makes a mockery of the public bidding laws, the build first/bonds later ploy makes a mockery of the laws providing for public accountability about large-scale municipal borrowing.
Even if these gyrations are legal, they certainly aren't smart.
Meanwhile, who's going to put up the interim line of credit on this one, when there's a good chance that the final bonds could get put up for a public vote, and perhaps fail, later? Wait -- let me guess -- Daddy Paulson's banker buds?
Posted at 4:26 AM
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Comments (17)
Hey this is a swell way to get the Convention Center Hotel built too.
Shhh
Posted by Ben | January 25, 2010 7:25 AM
Section 21.2.12 of the proposed Redevelopment Agreement released on Friday indicates that MLS would be given the authority to waive all design requirements, which means that the project would go ahead despite the fact that MLS, Paulson, and the city know that PGE Park will never be able to meet the current minimum MLS requirements for restrooms, food stands, and seating dimensions that are necessary for PGE Park to serve as a fully-functional venue.
Keep in mind that MLS is not a disinterested party. MLS would get $11 for every ticket sold if this project goes through.
And keep in mind that the MLS Venue Design Guide which contains all of those requirements is dated September 1, 2008, so MLS officials have obviously known about these problems since the start of negotiations.
So, why was the Guide never made public during public hearings last year, or since then?
The real danger is that these stupid and reckless actions by Adams and Leonard have the potential to trigger an SEC fraud investigation that could wreck this city's bond rating and finances for years to come.
Posted by Peter Apanel | January 25, 2010 7:42 AM
Question, isn't there supposed to be a full council vote shortly on the stadium deal? If so It will be interesting to see how Dan "I'll vote anyway you want Randy" Saltzman, votes considering the majority of Portland residents aren't in favor of the backdoor deal and Mr. Sleepy Dan is up for reelection.
Posted by phil | January 25, 2010 8:01 AM
For folks who watched what happened with the proceeds of the last Parks Bureau bond measure, the idea of Saltzman voting for something that might, for a private issuer, have whifs of securities fraud about it sholud be no surprise.
Just how did that Parks bond issue,authorized and spent while Saltzman was Parks commissioner, which was on the ballot described as for maintenance projects for already existing CoP Parks facilities, and similarly described in the voters pamphlet, wind up having more than a third of the proceeds spent on a brand spanking new aquatic facility?
Since the Parks bondholders have been paid acc0ording to schedule, no one on the enforcement side (SEC, US Attorney for Oregon, State AG or State Finance and Corporate Securities folks, have look at all. If a private issuer, say Union Pacific, had sold trust notes for an equipment trust for new locomotives, and instead used the proceeds for a golden parachute for executives, there would be a huge investigation. But with a municipal issuer and "full faith and credit" bonds, no one, including the bond purchasers, cares a whit about what was done with the proceeds.
Posted by Nonny Mouse | January 25, 2010 8:31 AM
Has anybody heard anything about what happens to PIL football games after this conversion is completed?
Much has been made concerning PSU football still having PGE Park as its home field.
A lot of PIL football games have been played at PGE. Will PGE (Paulson's Great Enterprise) still be available for PIL football games?
Has anyone on the City Council asked?
Has anyone at PPS asked?
Posted by Nonny Mouse | January 25, 2010 9:19 AM
Over the past year, many visitors to this blog have noticed Sam's penchant for bragging while lying. It's not enough that he just lie, he has to boast while doing it.
If the terms of this deal - the actual costs - are yet to be determined, because there's no way of knowing the costs of the zero coupon bonds next year, then you could argue that it's not really a deal yet, or at least a very shaky one.
But that didn't prevent Mayor Sam from going on local radio last week and pronouncing this deal, "nearly perfect."
The man can't help himself.
Finally, to Roger, does any of this financing give off a stench to you or is that Timbers scarf wrapped so tightly around your head, that you've lost your sense of smell?
Posted by Bill Mcdonald | January 25, 2010 9:42 AM
Wow. Portland, the Big Easy of the Northwest. Let me guess. There will be a big "placement fee" that will get buried in the administrative costs of the deal. Stinkeroo!
So, if MLS gets $11 per ticket, that implies a minimum ticket price of at least twice that, probably four times that. Who do they think is going to buy them? I really don't see our crowds of unemployed lining up for this. It implies a minimum family cost of $100 and probably more like $160 - $200.
Posted by dyspeptic | January 25, 2010 11:30 AM
Jack, what's the name of the debt guy at the city you talk to sometimes? I wonder if he can forecast how much the zero-coupon bonds might cost.
Posted by Snards | January 25, 2010 11:52 AM
200 basis points over junk, with exposure to the General Fund. Fantastic job city of Portland, you just won the gold medal in the special olympics of finance.
Posted by gl | January 25, 2010 12:17 PM
I noticed in the DJC last week that the City of Portland had published an RFP for the short term non-renewable line of credit for PGE Park construction. I called my banker to see if he had seen this. He replied that he had indeed and they were not interested in business carrying this level of risk. If the banks view this business as high risk that means when they do find someone willing to loan this kind of money it will be very expensive. Not a good deal for the City or us peons...
Posted by Dean | January 25, 2010 12:53 PM
It's unfortunate that no one -- not the D.A., the A.G., Willamette Week, The Oregonian or the Tribune -- has the time, resources and/or inclination to go down to City Hall and start turning over every rock in sight to see what crawls out.
This whole stadium mess is a Superfund site unto itself. Slimy, smelly and, as usual for this bunch, done in the dark.
The saddest part is the public treasury will once again get raided by sleazy swindlers and their sycophants in City Hall, who doubtless will be skimming their own slices of the pie. After all, Sam has lawyers to pay and boy-toys to buy.
Posted by The Other Jimbo | January 25, 2010 1:09 PM
Nicole Gelinas was on Book TV over the weekend talking about her book, After the Fall. One of her comments about the evils of implied government guarantees hit on these kinds of shenanigans. She said there is no doubt that a lot of these local government boondoggles (her word) wouldn't fly absent the assumption of an implied local government guarantee.
I don't agree with her idea of sole reliance on "market discipline" vs regulation, but she has a good deal to say that is interesting nonetheless. Talk with Q&A can be streamed here.
Posted by dyspeptic | January 25, 2010 1:40 PM
Couldn't lawsuits make that issue so radioactive that nobody would touch it? Better to provoke the municipal bankruptcy now, before the Morons do more damage, and while the US Gov still has borrowing capacity to bail us out. We could be first in line! Bankruptcy NOW!
Posted by Morbius | January 25, 2010 2:48 PM
Out from under one rock this toxic sludge might crawl, oh but with character: http://www.ashbrook.org/articles/kissinger.html
What's a war criminal to do in his twilight years to keep the minds of the masses off of certain deeds, than to bring World Cup Soccer to a stadium near you.
http://www.usatoday.com/sports/soccer/worldcup/2009-03-30-kissinger-bid_N.htm?csp=34
Sheila
Posted by Sheila | January 25, 2010 3:09 PM
I hope people with stand up for the feral cat colony located there. In one of its editorials the O called the stadium "feral cat infested", when the feeding station there is a testament to humane cat control.
Posted by Cynthia | January 25, 2010 5:31 PM
Feral cats being fed in a city stadium..... are we in Rome.... is that Fireman Randy playing the fiddle whilst the city burns?
Posted by LucsAdvo | January 25, 2010 7:26 PM
Sheila, Herr Dr Kissinger wants to bring the World Cup to the USA because he dare not travel to other possible sites, such as Spain, for fear of arrest, incarceration, and trial for crimes against humanity in Chile and elsewhere.
BTW, does the current plan for re-renovation of PGE Park include precautionary measures against a severe earthquake?
Posted by Gardiner Menefree | January 26, 2010 1:13 PM