Tweaking the City of Portland debt clock (Jack Bog's Blog)

We've just updated some of the base figures on our meter of the long-term debt of the City of Portland, in the left sidebar on this blog. The city's total outstanding long-term bonds and interim financing have come down a little in the past couple of months, although the trend over the past year is still an increase of around 7%. Our current roundup of all of the city's bonds and interim financing shows an outstanding balance earlier this month of $3,276,852,000 -- nearly $3.3 billion -- and we're using a conservative growth rate of 5% a year on the meter to watch that continue to climb.

As for the city's pension and retiree healthcare liabilities, those are hard to call with reasonable certainty, because the city dares to publish those figures only about once every two years, and when it does it likes to change its assumptions, making precise predictions impossible. Our clock, which currently shows the total unfunded retiree liability at more than $3.12 billion, is based on a 6.5% annual growth rate. Actual mileage may vary, but it would come as quite a shock if the hard numbers came in at $3 billion or less as of today. The $3.12 billion is our honest best guess.

All our current ciphering puts the city's long-term debt per resident at just over $10,833 at this writing. For a household of four, that's $43,332.

While we were examining the city's debt levels, we thought we'd take a closer look at the city's oft-repeated boast that it has a triple-A credit rating. Only two types of bonds that the city has outstanding get that rating: its general obligation bonds, and the bonds that have a first lien on the water system. (The water bonds used to be rated lower, but we just noticed that they got a boost when Moody's changed their bond rating system a while back.)

Now, our count of the balance on the general obligation bonds is around $85 million, and we've got the first lien water bonds at $324 million. The city's interim lines of credit aren't rated, but if you give them the benefit of the doubt, they add another $123 million of top ratings. And so all told, at most, only $532 million of the city's debt is triple-A rated. The rest of the debt -- $2.75 billion -- is rated lower. Another way to put it is that only about 16% of the city's debt carries the top rating; about 84% does not.

If the city had only $1 of AAA-rated debt, would you call that its overall "credit rating"? Probably not. Is 16% of its debt enough to justify that label? Think about it.

Comments (5)

And we call Paul Allen dysfunctional??

Posted by David E Gilmore | May 24, 2011 7:10 AM

I would be happy with assumed returns on investments (PERS-related investments) in the range of 3.25 to 4 percent, consistent with the 10 and 20 year treasury notes. This would mean that for a worker to get some expected payout tomorrow they must have a much larger chunk deducted from their paycheck today and entrusted to the wizards from the corruptable (I say corrupt) Oregon Investment Council.

If the worker wants out from such a preposterous compelled entrustment of their private savings then, of course, let them opt out -- or let them demand in court to be set free.

Having the government control the allocation of investment resources, even if only that of public employees (who were individually compelled to participate), has poisoned the entire framework of our government.

What are the odds that we can in the near term fix this financial nightmare without the state or city being declared officially bankrupt in a court?

Posted by pdxnag | May 24, 2011 7:17 AM

Is 16% enough? NO!
But even when the city is officially bankrupt the folks in charge will spin it as something positive saying something on the order of, "oh goody, we get a do over, so now all those junk bonds are more! valuable than they were before."

Posted by Portland Native | May 24, 2011 7:29 AM

So the debt went down slightly. You know what this means! Cost savings!!! Let's go shopping!

Posted by Snards | May 24, 2011 7:39 AM

About a month back, I saw the sewer bureau had new issue Muni's with a term of 30 years, and the interest rate yield was in excess of 5% per year. I think I saw an AA rating on the issue. This interest rate would seem to imply a very modest amount of material financial risk for Portland relative to the average risk in other parts of the country. One improvement in the financial management of Portland government is the city auditor. This auditor is less than the blatant rubber stamp of the last auditor, and the current auditor actually called out city hall for piggy banking off of the water bureau (Geez, and wouldn't you know it, this would be Commissar Leonard's Bureau).

Another useful metric not mentioned here is how city debt and obligations compare to city revenue (per year inflows). I think the city's revenue is about equal to its debt (excluding unfunded obligations), which should mean the city is about at the low end of a healthy financial position (like range).

I am not sure the financial picture won't continue to ebb lower as the Mayoral candidates look like big public project spenders. If I have to choose between Adams and Hale, I am probably either not voting for Mayor or voting for Adams (yuck).

Posted by Bob Clark | May 24, 2011 8:07 AM

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Tuesday, May 24, 2011

Tweaking the City of Portland debt clock

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