Portland water bonds sales pitch mum on Carollo
The Portland City Council just can't seem to put the city into hock fast enough for the politicians' taste. Here's the official sales pitch for the latest loan they're about to take out -- $74.6 million, to be paid back over 25 years, for various vaguely defined "capital projects" in the "water" bureau. It's going to happen next week.
It's interesting just what the Admiral and his henchpeople include as "capital projects" of the "water" bureau. Included in the "capital improvements plan" are:
-- maintenance and repairs of wells, which don't seem very "capital";
-- "rehabbing" of the water maintenance building ($46 million), which probably includes all manner of deferred maintenance;
-- throwing an unspecified amount of money at the city's new "emergency coordination center," which doesn't sound as though it has a lot do with water; and
-- $28 million for the "Willamette Crossing Project." Could that last one be water money for light rail? See you in court, Admiral!
Another fascinating tidbit from the bond statement is just how far the city's water system is already mortgaged, and how much more debt will be heaped on over the next four years. Counting the bonds that are about to be sold next week, the overall mortgage is up to $455.6 million. Eight years ago, that amount stood at $160.8 million -- even taking inflation into account, the mortgage has increased by around 235 percent.
It's even uglier if you think about the mortgage payments. Debt service on water bonds for the fiscal year just begun is expected to be around $37 million; the total operating revenues of the water bureau for the year are expected to be around $136.5 million. In other words, 27 cents of every dollar collected will go to pay off money that's already been spent. Four years from now, the debt service is projected to be a frightening $71.3 million a year, on projected operating revenues of $209 million, or 34 cents on the dollar. That means less and less available for actually running and maintaining the water system. Can you say "Nestle Waters"?
On March 9, 2012, Siltronic announced that it intends to stop producing 150 millimeter-sized silicon wafers at its Portland, Oregon location in the fall of 2012. Siltronic announced that it will continue to produce 200 millimeter-sized wafers at its Portland site. If Siltronic closes the Portland, Oregon factory, the estimated retail rate impact to ensure that revenues are sufficient to pay debt service and meet debt service coverage planning standards could be as much as two percent.
But don't worry -- they'll never fold up and leave Portland entirely. They love the business climate here.
Perhaps most noteworthy of all, and curious indeed, is the fact that the prospective bondholders are being told nothing about who the city's second biggest water customer really is. Our computer has been unable to find a single word of mention in the official statement about Carollo Engineers. You'd think the fact that this obscure private outfit is quietly using up hundreds of millions of gallons of water a year from the city's well fields is material information that the investors would like to know. Guess not. Here's the list of biggest water users -- Carollo's nowhere to be found. If it were on the list, it would likely be second from the top, with the difference between it and no. 1 about to get smaller.
In any event, while Portland keeps borrowing like a college kid with a new credit card, cities and towns all over the country are crashing financially, and several experts now warn that many of them will be defaulting soon:
"There's never one cockroach," says Marilyn Cohen, president of Envision Capital Management in Los Angeles. "Scranton tells you it wasn't just a California-specific problem. There's probably other Scrantons out there and more Harrisburgs out there. Individual investors need to be very careful and very selective of what municipal bonds they want to own."
The new Portland water bonds are rated Aaa -- the rating agency's way of saying there's relatively little risk for the banks and other investors who may buy them. But that's what they said about a lot of bonds four years ago, just before the collapse of the financial markets. Time will tell whether they're right about Portland water.
If there were a standard-of-basic-services rating for Portland, however, you can bet that it would not be Aaa. The banks will most likely get paid -- the Sam Rands are committing Portland residents to pay come hell or high water, so to speak -- but the streets and the schools will probably never improve. Go by streetcar!