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This page contains a single entry from the blog posted on June 21, 2012 1:10 PM. The previous post in this blog was Portland sewer barons drain everyone dry. The next post in this blog is Bike share: It's a white male thing. Many more can be found on the main index page or by looking through the archives.

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Thursday, June 21, 2012

Another month, another $70 million of debt for Portland City Hall

The City of Portland's going to the well to borrow more tens of millions of dollars this week -- $73.7 million for "urban renewal" malarkey in the "River District," which looks to be the Pearl and vicinity. Around $33.2 million of it will refinance bonds issued back in 2003. The other $40.5 million or so will apparently be used to pay off back-room "line of credit" deals already made with Wells Fargo and one or more other lenders (if we had to guess, Bank of America). The official sales pitch is here.

The new bonds carry a Moody's rating of A1. That's the fifth rung down on the Moody's rating ladder -- four down from Aaa and popularly translated as "upper medium grade."

The city's long-term debt, counting bonds, lines of credit, and unfunded pension liability, is now about $11,000 per resident, and rising.

Meanwhile, if you think the municipal bond world is on the up-and-up, you might want to put a little time aside to read this fascinating tale of woe. There are snakes under every rock.

Comments (13)

So, how is refinancing existing debt (while interest rates are at a record low) an increase in debt?

"So, how is refinancing existing debt (while interest rates are at a record low) an increase in debt?"

I believe the CoP was still trumpeting its Aaa bond rating back in 2003, but the current rating of A1 is a four-step downgrade. I don't know what that translates to in terms of an apples to apples interest rate comparison, but it's becoming more and more expensive for the CoP to borrow money. Perpetually refinancing "interim" financing obligations isn't exactly a sound financial strategy. How about actually paying the balance down?

Good point about the relative bond rating, I don't know the rates either, but I'll bet the lower interest rates offset the credit rating impact. Any time they pay debt service they buy the principal down.

Crooks, liars, and thieves....everywhere
Great article in Rolling Stone, thanks!

jmh's comment on "perpetually refinancing...isn't exactly a sound financial strategy" makes sense in what is happening in several of CoP's URA's.

In SoWhat even PDC's financial gurus recognize that property tax collections are going down. One major reason besides property deflation is that property owners like bare land and condo owners are appealing their taxes and winning. Thus, the TIF dollars aren't rolling in as projected in 1999 and in subsequent years. The recent PDC financial projections reflect this as their "Fund Resources" dollars go down each year out to the final projected years of 2016-17.

The reality is that continuing the debt, even reconstituted, and how you will pay for it isn't sound.

So, how is refinancing existing debt (while interest rates are at a record low) an increase in debt?

Nobody said it was. But you can bet your smart a*s that the interest rates on this permanent financing are going to be way higher than on the back-room short-term "lines of credit." The debt service burden will be going up, not down.

BTW, "duckster's" posting from a city computer.

Re: the bond ratings, I've addressed them on numerous occasions, including here:

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.

One thing to keep in mind when you refinance is the clock starts all over again, including all the upfront fees and setup charges.

And interest rates are paid as an inverted pyramid - they get the interest first, then you slowly pay off the principal.

Unless you are getting a killer rate, it takes a long time to break even and it prevents you from borrowing for other more important things - well it should - but these a-hole rated folks are addicted to borrowing so they just keep digging a bigger snake pit.

Its too tempting when the market keeps buying up Portland's junk. So what if you owe $60M just sell $70M worth of promises.

Some city somewhere is going to have to make one helluva default on bonds to shut the market down - There is just too much money (thank you Mr Bernanke) in the system looking for a home.

It would be interesting to have some of these comments formed as questions directed to CoP/PDC staff. Of course, done nicely, and with follow-up. It's time.

And the questioners shouldn't let them get away with the typical "let me get back to you on that".

I thought that it is up to adults to take care of matters for the future generation,
as when I was a child I needed to trust the adults to make good decisions.
Wow! What happened? Fukushima for one and the list unfortunately is very long.
At this point, we can plead with our council to stop the spending and debt swamping,
but they continue on that downward spiral, all for the children, right?

Steve -

Its not all Bernanke and his "printing press" .

There is a huge inflow of funds running away from Euro denominated instruments.

And with the problems France is going to hit in the fall of 2012, that Euro inflow will only increase, further depressing rates / yields on US dollar denominated government securities. Not that the US dollar denominated government securities are good risks, but because the alternatives are so much worse.


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