Borrowing money that's already down the rat hole
It's another big day in the history of Portland's reckless borrowing spree of the new millennium. Today the city is scheduled to sell the permanent bonds to finance around $64 million that's already been spent in the economically failed South Waterfront District, known by some of us as SoWhat for short.
A quick read of the sales pitch for the bonds -- which are being sold in a private negotiation with Bank of America and Citi -- reveals a sobering picture. It's a pretty bleak scene down in SoWhat, and these bonds aren't exactly top-tier. In fact, they're rated A1 by Moody's, and that's only the fifth-highest bond rating that organization issues. It's interesting that the mayor and his minions like to brag about the city's AAA bond rating. But that rating applies only to the city's general obligation bonds, of which there are only around $61 million outstanding. In contrast, today's borrowing will be $64 million for SoWhat alone, and not general obligations, of course. The city's overall total long-term debt load is about $3 billion, most of it not AAA, by a longshot. Add another $3 billion for unfunded pensions, and it's downright scary.
Anyway, today's sales document, known as the "official statement," reveals that the city is running one of its favorite trick plays to perfection on this deal. It's signing up for the long-term mortgage on its SoWhat infrastructure now, but the $64 million was spent long ago -- borrowed (probably from Bank of America) on "interim" lines of credit. At the time those interim loans were authorized by the City Council, it was too early to tell exactly what would happen in SoWhat. Now, when the interim loans have to be paid off to avoid default, it's too late not to issue the permanent bonds. And so the city's voters never really got a chance to challenge the spending. Classic Portland shenanigans, aided and abetted by the state legislature, which lets the city get away with it. The area's near-monopoly government bond lawyer, Harvey Rogers, probably drafts bills authorizing all kinds of ill-advised borrowing by the city, and when the city's lobbyists take them down to Salem, the lawmakers, many of whom can't balance their own checkbook, rubber-stamp them.
But we digress. At one point the document indicates that about $30 million of today's debt will be for 12 years, and the other $34 million or so will be for 20 years. That could change before the sale is finalized, but it's clear that the junk that's been built in SoWhat so far, won't be paid off for a long time.
There's an interesting appendix attached to the sales pitch. It's a study by the consulting company ECONorthwest -- a firm that tends to turn a nice buck issuing reports that support "urban renewal" and other City Hall pipedreams. In the report, the consultants project that condo prices will continue to drop pretty steeply, with a 38% crater over just two years. And to us, the money quote from the report comes when it states quite clearly that it isn't just the national economy that is causing the crash. Portland, they say, clearly overbuilt condos -- more than could be profitably sold even in good times:
The primary issue for the high-rise condominium market is one of oversupply. Simply put, too many high-priced condominium units were constructed between 2005 and 2008 than were warranted by the depth of the real demand for the product, irrespective of macro-economic conditions.Bingo. And they left out the fact that they're butt-ugly insults to our neighborhoods, too.
Another fascinating fact that we haven't seen mentioned elsewhere is that Comcast has a major property tax dispute going in Portland right now, including a huge battle over property valuation in SoWhat. The city's chart of big property owners in the district shows Comcast holding $74.8 million of assessed value, but down in a footnote to the chart, one reads that Comcast is alleging that the proper assessed value should be only around $13.2 million. That's a $61.6 million difference of opinion.
Anyway, I propose a toast to City of Portland municipal bonds and all the shiny toys they buy. Let's worry some other day about paying them off.