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Monday, October 31, 2011

In Pennsylvania, a sister city for Portland

The Harrisburg case raises fundamental questions about the way cities and states increasingly use debt to finance speculative development that private investors or lenders won't touch. From minor league stadiums to arenas, museums, downtown redevelopment and waste plants with unproven technologies, billions have been spent on schemes of questionable value. Some projects are backed by unrealistic economic projections, which leave taxpayers on the hook for bond payments or operating subsidies. These deals are one reason why state and local debt outstanding has ballooned from $1.3 trillion to $2.5 trillion in the last decade, according to the U.S. Federal Reserve.

Perhaps the country does need a national museum of bad government ideas. Harrisburg would be a good place for it.

The whole article should be accessible for a little while longer, here.

Comments (18)

And we have many we could showcase in that museum...MAX, the Streetcar, the Pearl, South Waterfront, The Round, etc.

So why then, do banks continue to issue bonds to high risk customers? What is it they see, or have been promised, to justify the risk?

Most of the bonds for these projects are backed by the property taxes of the city. Until there's a wave of bankruptcies, there's not that much risk to the bondholders. For deals that are based on the success of the project, interest rates are high. Earlier this year, some 15-year Portland "urban renewal" bonds were sold, and the interest rate on them was more than 6.25%.

And now we know why Sam isn't running for Mayor. The last thing he wants to happen is to be in the Mayor's office when all of those bills come due, so he'll gleefully leave the mess for the next slob dumb enough to want to inherit it.

Hmm. Author is a fellow at the "Manhattan Institute for Policy Research", whose website has, amongst other parts, a page praising Frederich Hayek, the most famous free-market libertarian Austria ever produced.

I can't not look on that with a jaundiced eye.

Stopped-clock-right-twice-a-day, I suppose.

Minds are like parachutes -- they work best when open.

Regardless of who wrote it, it's more important whether or not the story is true, and that should be a matter of public record.

Early on during WW2 the Soviets carried out a secret mass execution of Polish officials and intelligentsia in the forests of Katyn. When later discovered by the invading German army, it was well documented and openly revealed to the Red Cross and the world, but the Allies pointed fingers at the messenger and refused to believe it, and after the war it was conveniently covered up by the occupying Soviet authorities.

Sometimes the bad guy tells the truth.

Saw that story in this past weekend's Wall Street Journal. As I was reading it; it sounded way too much like a forerunner of what might happen to Portland in a few years. Already TriMet is having problems figuring out how to pay for current expenses - without their stupid train to Milwaukie.

"Most of the bonds for these projects are backed by the property taxes of the city."

Also, I'm pretty sure they get paid first. So even if our local services get crowded out of the budget, the bond holders get their 6.5%. Hmmm, maybe I should buy some....

As George Carlin used to say, "they own you". The super rich have built a system that robs you of your wealth and city bonds are part of that scam.


So what happens to The City That Works when property taxes skyrocket to pay for all these bonds and services are reduced?

Not a pretty scene ahead, should have been stopped long ago, as soon as our City of Roses was slipped away from us. We can thank Katz/Hales/Adams and continuing on with Adams and council for more of the same.

What is it they see, or have been promised, to justify the risk?

The Harrisburg story is uncomfortably close to the Portland story. Basically an idiot mayor who loved to spend other people's money. Eventually the bills came due and now everyone is pointing fingers at each other.

There should be a check and balance approach to city debt but evidently the system doesn't really work very well. The taxpayers don't seem to pay much attention even though they are the ones on the hook. The city government doesn't seem capable of policing themselves and the banks don't really care too much since the debt is backed by taxpayer money.

There should be an external audit process but it doesn't seem to work. Portland is basically bankrupt right now but that is the last thing that the mayor, or even the mayor candidates, talk about. All they seem to talk about is how to spend more money.

If there was ever a need for "big government" and more "federal government", Congress ought to open a new branch of government whose job would be ONLY to audit all lower governments (cities, states, counties, special districts, joint power boards, regional governments, transit agencies, parks & rec districts, port districts, etc.)

Clearly, having "independent auditors" are too close to the government they are supposed to oversee, and the Secretary of State's office isn't doing their job.

For further fleshing out of this, from the Weekly Standard:


A simple step would a requirement that cities would need to recognize pension costs in the same way that corporations have to recognize them.

At the moment, cities are allowed to willfully mislead taxpayers in regards to pension obligations. They are also allowed to make up numbers for estimated rate of return on their investments. A big city like Portland is politically motivated to lie about how much debt it carries. Since the guidelines are so loose, they get away with it. Besides, it is a boring topic. Not very many people want to discuss public finance issues. Until of course it is too late.

Taxpayers really should insist on professional management for large cities, but it seems like a majority of voters in Portland are happy electing folks like Sam who really have no qualifications for the job.

A self-funded independent audit is what's needed for Portland and other government entities in our fair state.

The basic idea is that independent auditing firms would bid competitively for the right to audit the city. They'd get to keep 10% of any waste discovered, which would be increased to 25% if the waste happened in violation of any federal/state/local law, and upped to 50% if it results in a criminal conviction.

The auditing firm would be guaranteed access to all financial records of the entity in question.

My guess is that the government entity would protest some of what the auditor called "waste", and this would end up in the courts for all to see in gory detail.

In theory, the audit would pay for itself via the winning firm's bid. The budgetary savings from uncovering and eliminating waste would be substantial. Here in Pdx, perhaps more than substantial.

adp, I like your ideas.

I would add to Snard's comment "bondholders are first in line" that PERS employees are right there too.

After you add those two obligations together, they amount to over 75% of our government budgets. Enjoy your $2.57 garbage pails, that's the government services we're left with.

...Enjoy your $2.57 garbage pails, that's the government services we're left with.

It is quite frightening to think of what will happen to our city with tax increases to pay for all the debt and then on top of that, seeing our services deteriorate before our eyes...
if only our local government had been prudent when they knew debt was a problem, I simply cannot understand what they were thinking to pile on more debt and spend like no tomorrow...
I guess that is it, there is no tomorrow for THEM to have to pay!
It looks like a downward spiral we have here,
I would so like to be wrong on this.

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