You are what you elect
Yesterday's hilarious announcement by Portland's creepy mayor that the city must suddenly cut back on unnecessary spending came at a most interesting time. That very same day, the city was out selling general obligation bonds to the public via Wall Street intermediaries in a $20.7 million refinancing. Were the prospective bondholders alerted to the mayor's momentous memo about the looming cash flow difficulties? I wouldn't be surprised if they weren't. Is that kind of omission from disclosure legal under the securities laws? At this point, government finance in America has become such a Fantasyland that maybe it's not even worth asking any more.
How did the city wind up $2 million in the hole this year? Gee, could it have been the $415,000 that it paid Steve Janik to grease the skids on the Paulson stadium deal? Or the $159,000 in interest that will be paid out of the general fund in the first year of the new $12 million loan for the Paulson stadium deal? Not to mention what it spent on staff time to make His Lordship happy. That's more than a quarter of the $2 million shortfall right there.
And I thought we just discovered $2 million in mystery savings in the sewer department. Could that money be used to fund traditional city services? Oh, no -- that has to go for bike boulevards and bioswales (formerly known as ditches).
The most amusing part of yesterday's development, though, was the Trib's rote recitation of a highly misleading proposition: "the Oregon Constitution... requires the state and local governments to balance their budgets every fiscal year." Really? Then how does Portland have $2.9 billion (with a "b") in long-term bonds outstanding? And how is Portland able to borrow something like $27.8 million every year to pay police and fire pensions, by selling "tax anticipation notes," and pay the money back out of the following year's tax collections? Balanced budget, my eye. Credit card binging and check kiting is a lot closer to an accurate description of the reality. Whatever the state constitution requires, it's nothing like what any household's money manager would call a "balanced budget."
It's sort of like the oft-repeated assertion that Portland has an "AAA" debt rating. Of the billions in long-term Portland bonds outstanding, only the general obligation bonds are AAA-rated. Many other of its bond issues bear lesser ratings, and have done so since the financial crash of the fall of 2008. Saying the city has an "AAA" debt rating is like saying that you're a vegetarian sometimes.
When the house of cards blows down, and that day will be sooner than most folks think, the public will wonder, "What happened to us?" It's pretty simple. The public let guys like the mayor, the city's money people, the bond lawyer, and the bankers and rating agencies whom the city enriches month after month, draw a curtain of secrecy and complexity around municipal finances. The only people accountable to the public are the elected officials, and let's face it, we have put in charge of our money a guy who not so long ago couldn't be trusted to make his own mortgage payments. Now he's in charge of a multi-billion-dollar business that's way over his head. And apparently the city doesn't even have a CFO, a treasurer, or a controller at the moment.
Don't expect Salem to be of any help at all. Oregon's got a long stay in the intensive care unit right around the corner. There will be no handouts from that quarter. Maybe Mike Bellotti will step up and donate $2 million to the city, but I doubt it.
Down in Los Angeles, the mayor's about to put the city government on a three-day work week rather than have its checks bounce. They've finally run out the clock on the financial shell game there. Default and decay are about to happen. It'll be pretty bad in Portland, too, before you know it. Yesterday's memo from the dude at the top is just the beginning. But hey, time to buy the Post Office at 150% of appraised value! Time to form another "urban renewal" district!
Go by streetcar!