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Monday, April 12, 2010

Other shoe about to drop in Portland bond game

A couple of years back, I figured out a cute maneuver that Portland City Hall uses to prevent the public from challenging the many long-term loans that it takes out for wasteful "urban renewal" projects. The City Council authorizes the issuance of "interim" financing for the projects long before anyone can figure out what the projects are all about. There are only the vaguest of plans, if any, at that point, and so the public has nothing concrete to object to.

Step 2, the city runs out and borrows the money from a friendly banker like Bank of America on an "interim" line of credit that extends for several years -- usually five years. There are currently a couple of hundred million dollars in such IOU's floating around from the City of Portland.

Step 3, the "urban renewal" bureaucracy blows the money, with a healthy chunk going toward said bureaucracy's pay and benefits.

Step 4, after the money's all gone, the City Council authorizes the permanent financing for the project. At this point, it's way too late to turn back -- the money's already been spent, and whatever was supposed to be bought and built has already been bought and built (and maybe even given away on the City Hall friends and family plan by this time). Would the public now challenge the long-term bond issue? What, and throw the city into a major default on the line of credit?

Presto -- "urban renewal" bonds without a meaningful opportunity at a voter challenge.

You can see Step 4 in action in the next few months, as the city goes to the bond well for $44 million plus to pay off some of the "interim" debt on the financial black hole known as the SoWhat District. Everything down there has now conclusively tanked, but only now is the city getting around to taking out the mortgage to buy the place. This is where the voters theoretically get their chance to say no, I think. But if they do so, the city's in default on the $44 million line of credit with nowhere else to get the money. That cold, hard thing you feel pressed to your temple is the barrel of a gun.

I can't imagine what the terms of those bonds are going to be, or the interest rates. The condos in the ludicrous towers are being auctioned off in fire sales for less than half the grossly inflated projected prices they started out at, and the jobs that were supposed to be created down there were all smoke and mirrors from OHSU to get its office building and infernal aerial tram [rim shot]. If the city's going to ask to borrow money based solely on the future growth of the so-far-badly-failed neighborhood, any rational lender group is going to laugh. That leaves only the city's general fund as the collateral -- and that's already running dry.

Maybe they'll pay for SoWhat out of your water and sewer bills. Don't laugh.

Comments (26)

You nailed it, sir. In the article about the John Ross condo auction, a buyer and Commissioner Fish said that things would get better here in SoWa. Fat chance! Numerous obstacles prevent this area from integrating into the vital fabric of Portland any time soon.

The 800 lb. gorilla in the room is the looming traffic problem. Planners predict crippling traffic jams into and out of this area from 7-9am and 4-6:30pm every weekday once the condos that now exist are fully occupied in a couple years. Nobody will want to live or work here with the smell of auto exhaust from a column of cars up and down the couplet for 4.5 hours each day. I wouldn't be surprised if OHSU doctors refuse to subject their patients to that exposure once traffic starts getting bad. These traffic failures will get worse if there is any additional development.

Traffic is one of many problems we face here. Affordable housing, housing for veterans, and the MAX will cause rich people to flee, which is a problem only because the bonds you wrote about will have to be paid out of the general fund if property values plummet. Other problems include a general lack of HOA reserves, special assessments on the horizon, the probability of finding problems with these heavy steel and concrete glass shell towers built on an unstable flood plain in a wet environment, and high commercial rents that prevent businesses from succeeding here.

All this adds up to an area that will lack the vitality of the rest of Portland for a long, long time. Things here will not simply improve if the general real estate market improves. Caveat emptor!

I was recently driving a good friend of mine around who is moving here from Colorado (his company is temporarily relocating him here).

We toured some of the glass tower apartments in the SoWa district, and his response was: "I wouldn't live down here for half the rent"...completely unprompted, he described the area as "the nicest f***ing ghost town I've ever seen".

It is hard to see how anybody, much less Portland taxpayers, will ever recoup their investments down there.

You disturb me, I need disturbed. I was so taken by the Federal mess I didn't pay attention to my own backyard. I only discovered your site about a month ago and see that you got the first button in the right hole, the rest of us are trying to catch up. I got heavily involved in politics in 2008, but mostly on the Federal level. After awhile it became clear that I was trying to start at the wrong end of the food chain. I am now strongly focused on the local issues and charge my daily crusade with the fuel provided here. Once I catch up I might have something to say, but for now it's just a BIG THANK YOU, for holding the fort while we wandered!

You clearly have captured a vital part of the equation and presented it with clarity. Thank you for providing this as a forum for information that would otherwise pass under our radar. And to the contributors with a broad area of supporting knowledge and input.

"Everything down there has now conclusively tanked, but only now is the city getting around to taking out the mortgage to buy the place."

Very well put. Jack, you're the only source delving into these things in a meanful way. Keep it up!

Fascinating - It takes less work/notice to tap the credit line. Then when you run up the credit line you actually issue bonds, because you need to.

Isn't this what happened with home-owners running up credit cards and then doing a cash-out re-fi on their house to pay for it?

I wonder when tipping point is going to happen on this debt.

On the other hand, who's gonna tell Sam/Randy no? Kroger's too busy investigating the West Linn mayor and everybody else on city council minds their own business or else.

SoWa Neighbor: "The 800 lb. gorilla in the room is the looming traffic problem. Planners predict crippling traffic jams into and out of this area"

What every one in Portland has to understand is how deliberate this is. Planners believe that making driving miserable will improve the city.

I know how crazy that sounds, but they truly believe this. They are absolutely evangelical about getting even a small number of cars off the road, and they are willing to make every Portland driver miserable to do it. Fewer lanes, more signals, less and more-expensive parking, "traffic calming" measures. Bike lanes and streetcars interfering with cars.

This is absolutely deliberate. It took me 50 minutes to get out of downtown to the Beaumont area a couple weeks ago. 50 minutes to drive across a couple of inner neighborhoods, leaving at 4pm, an hour before "quiting time."

For the first time ever in this city, I thought "oh god, this is exactly like what we fled in Seattle." I was even more bummed to realize that I actually meant it - that it really felt exactly like a Seattle commute.

"from OHSU to get its office building"

One correction - I think. I thought that office bldg was owned by a not-for-profit collective of doctors? Doesn't matter it don't pay property taxes so that TIF funding is not there.

Another interesting thing - If TIF funding for these improvements is based on an increase in value, what account are they robbing to pay for the improvements now that assessed value has to be at least 1/3 less than in 2007?

That I-5 fix is at least another $150M plus all the shorline stuff.

I believe the I-5 fix has been officially abandoned. As has the pedestrian bridge that was promised the Lair Hill neighbors. And the affordable housing is not likely to be built.

All we got was the tram [rim shot], and the condo towers. Nice job, Neil, Vera, Sam, Erik, and Randy. Thanks!

Not that it's the biggest issue, but the pedestrian bridge in Lair Hill should get built this year--if this is the one at Gibbs St. It is already funded and in the current bike plan, even though the use will be primarily for pedestrians, not bicyclists.

I read the article in the O this morning about the condo auction and though to myself, "Gee, for about the price of my nice craftsman house, I could buy a one-bedroom condo in a creepy part of town. Still not a bargain at half price."

So, Jack, a question...

When are you going to run for mayor to put a stop to all of this?

I'd love to see you debate Mayor Creepy. My only guess is that 95% of Portland would tune you out because all of the "math stuff is hard".

Not only is it deliberate, but without regard to our quality of life.
How many more minutes a day, a week, a year - time out of our lives to be controlled by their agenda?

Plus, do they ever think about any emergency in our city, earthquake, natural gas fires?
We would have immediate gridlock! How smart is that?

They love to deride Measure 5 & 50 but the thing the government class likes about Measure 50 in a TIF environment is the provision for 3% increases. Unlike the minimum wage law that adjusts for inflation but ONLY adjusts UP (no one considered deflation like we had last year) is that next year the market value in areas like SOWA will be lower than the assessed values for most property there so the take from the greedy hoards down at the PDC will start to fall. No one ever thought about that.

I think owners of undeveloped land can rightfully claim that the value of that land is essentially zero. To build at the minimum required density would cost more than the market will pay for the building so who would buy the land, even if free?

The developers who got in and out with their non-recourse loans are ok, and you know that no politician will suffer in any way, but what about us?

In a natural disaster, we'll all get a phone call from Creepy telling us everthing is ok.

Eric, It'll be a text message.

A rally tonight at the recall HQ:


A handout from PDC for SoWhat's projected TIF dollars reads:

FY 2010-11 $7,739,224
FY 2011-12 $8,481,305
FY 2012-13 $8,760,532
FY 2012-14 $17,013,978
FY 2014-15 $6,786,534

The projected cost for obligated, promised public projects yet to be built in SoWhat is over $227 Million dollars. The rate of TIF dollars coming into SoWhat doesn't even pay for the debt service for what has already been spent by the public. It isn't looking good in SoWhat.

Jack, you're right, the I-5 north bound freeway flyover ramp has been abandoned, plus the ramp down to SW Sheridan under the Marquam Bridge that was substituted when the flyover was eliminated. So PDOT then decided to funnel all the northbound I-5 traffic north onto SW Naito to the existing street into RiverPlace. PDOT estimated over 65% of SoWhat future traffic would come from the south-31,200 trips. Now put that number onto the existing street (SW Market) that serves also as the entry ramp/street to I-5 south from downtown Portland-that is definitely GRIDLOCK.

It also means that to go to a business or condo/apartment on the south end of SoWhat one has to drive over three extra miles-one and 1/2 mile further north, one and 1/2 mile back to the south. Is that being Green?

This gridlock was promised not to happen to the neighborhood and the city by Katz and Sam Adam, chief of staff. The supporting Statewide Land Use Plan, committee plans, city documents, and City Council adopted SoWhat Plan requires transportation infrastructure to support the 6 times increase in FAR density in SoWhat. The city is not meeting its obligation. And the potential businesses and residents in SoWhat realize this fact because they can't get there, and the sales reflect this market result.

As SoWa pointed out, even if one is to buy at 50% to market, the HOA's will always be above market and growing.

Regarding the traffic on a related tangent - my sister was up for the day from Salem - we were hanging out in the Hawthorne area - I mentioned the imminent streetcar, and her question was "Why?" She immediately got it that traffic would be impossible if adding a streetcar line.

Why the big jump in FY 2012-14? Is it possible for another project to be built there? I think more accurate predictions would look like this:

FY 2010-11 $6,739,224
FY 2011-12 $4,481,305
FY 2012-13 $3,760,532
FY 2012-14 $2,013,978
FY 2014-15 $1,786,534

Wait until people start getting their summer PWB water bill, just before the property taxes are mailed. 95% of the Portlanders will "get the math" at that point!!!
And part of Creepy's disaster alert will be by phone after PPS phone tree process. Not all people have text messaging to tell them they've just been in a disaster.....

Are you kidding? In the event of any major disaster, Sam, Rand, Dan and the rest of the inner circle will be immediately wisked away in Lord Paulson's heliocopter to safety high above the West Hills where they will first dine, have a glass of Pinot, and if convenient call in to the media to say "stay home, don't travel unless you absolutely have to"

Itoldyouso, PDC staff didn't explain that 2013-14 anomaly. In fact they regarded these "projections" as "very good news", "we can make headway" in their report to the URAC. Unbelievable remarks. Every thing is fine in SoWhat, just ask the PDC. Of course after three total changeovers of staff assigned to SoWhat in just the past 5 years, there is total understanding of the financial picture and promises made.

Isn't Creepy also going to take $20 million from SoWa UR to help fund Milwaukie Light rail.
That's real smart.
You want to stop this? Stop Milwaukie Light rail.

As for UR/TIF, most people don't understand that Urban Renewal, freezes for decades, the funding for basic services while the cost of those services continues to rise every year.
With little public understanding and awareness the red ink created by UR must be paid, backfilled, with other increased taxes and fees.

This problem is growing worse in two major ways.

One is expansion and addition of new districts increasing the future diverting of 100s of millions more to pay for things like Milwaukie Light Rail.
The other is the increasing difficulty in this crisis and and stagnant economy for taxing jurisdictions to find replacement revenue.

The business as usual approach by most politicians has them failing to recognize the problems they are exacerbating.

Some continue to mislead the public with claims that UR pays for itself.

With plans surfacing for expanded use of UR across the region this is a regional problem which a public push can stop.
Especially with the new UR law requiring 75% of taxing jurisdiction support and with the rising public awareness and understanding.

And again, the decreasing ability to find replacement revenue and taxpayers becoming more reluctant to provide more is making the UR problem worse.

The planned MIlwaukie Light Rail line has ALL of the red flags WES had and more. Over a BILLION more.
But we're also in a horrific economy which demands prudent spending to fill large budget shortfalls at all levels.

Yet the MLR will take $250 million from the lottery, $100s of millions from TriMet, $10s of millions from Portland and now millions from a coming UR scheme in Milwaukie.
This short 7 mile MAX line will cost $1.4 Billion-plus/ $190/mile in a corridor that already has good bus service.
Many millions more will be needed for station access and other improvements.

TriMet is currently selling off assets and in a fiscal tail spin.
All of the money this boondoggle will waste is needed elsewhere, including in the pockets of taxpayers.

Here's the punch line.

All of the remaining supporters of Milwaukie MAX are the same people who perpetrated and supported SoWa while calling the opponents misinformed and out of line.


$1.4 billion plus for the Milwaukie Max line.
$1.6 billion with debt for the PWB projects relatd to the EPA LT2 rule.
These are just two projects!!

We are both waving the red flags as we simply cannot afford this!

We so need decision makers to be prudent, the scary thing is they aren't!

prudent [ˈpruːdənt]
1. discreet or cautious in managing one's activities; circumspect
2. practical and careful in providing for the future
3. exercising good judgment or common sense
[from Latin prūdēns far-sighted, contraction of prōvidens acting with foresight; see provident]
prudently adv
Collins English Dictionary – Complete and Unabridged 6th Edition 2003. © William Collins Sons & Co. Ltd 1979, 1986 © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

Jack for mayor!

Just to see Mark Bunster and Garrett have aneurysms would make that run worthwhile

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