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Tuesday, October 23, 2012

Rust never sleeps (neither does Johansen)


Two of the guys who led Portland down the yellow brick road to a crushing debt load are circling back around to cash in as private consultants. Ken Rust (left) and Eric Johansen, formerly the city's chief administrative officer and treasurer, respectively, are opening a new Portland office for an outfit called PFM, which advises governments around the country on how to put the taxpayers further and further into hock.

It's encouraging that someone is giving Seattle-Northwest Securities some competition for the business, but you can just imagine how much dough two recent insiders like Johansen and Rust will get themselves paid by the taxpayers of the city and other government spendthrifts around the region. Both of them previously worked for PFM before they got on the city payroll. Rust started out at the dreaded CH2M Hill, the prime driving instructor on the road to Chapter 9.

Here's a funny letter from a few years ago. It's Johansen, in his City Hall gig, singing the praises of having private consultants as well as underwriters on every municipal bond deal:

After 28 years of experience in public finance, I believe that issuers are best served when they clearly and distinctly separate the roles of financial advisor and underwriter. In short, hire independent financial advisors to provide financial advice and only hire broker-dealers to underwrite bonds. While investment bankers may provide helpful services that are advisory in nature on a negotiated sale, issuers should not lose sight of the fact that the issuer’s interests are different from those of the underwriter. A quality, truly independent financial advisor provides the issuer with advice that is untainted by other business relationships.

And now -- cha-ching! He and Rust are the "truly independent financial advisors." Funny how that works.

Including unfunded employee retirement benefits, the long-term debt of the City of Portland now exceeds $11,000 per resident, and is growing daily.

Comments (5)

PFM = Pure F'ing Magic?

A reader points out this interesting story from a few years back:

Christopher Taylor, who retired in 2007 as executive director of the Municipal Securities Rulemaking Board, said the evidence amassed so far included tape-recorded phone calls, in which the independent specialists who are supposed to help local governments pick their bankers could be heard telling bankers: "We want you to bid on this deal, but you're not going to get it — you're going to get the next one. We want you to submit a sloppy bid."

Unsuspecting governments then accepted the recommended bids, and paid too much, he said. Mr. Taylor also cited evidence of banks being paid in cities where they did no work at all, apparently to reward them for throwing the business to their rivals.

Speaking of insiders, the state Municipal Debt Advisory Commission identifies Carol McCoog and Javier Fernandez only as "Public Members". McCoog is a partner with Hawkins Delafield & Wood. Fernandez, formerly with Seattle Northwest, is now a VP with D.A. Davidson where he set up their Oregon municipal underwriting business.

Ever notice how the leading purveyors of Bad Ideas invariably seem to be those who stand to profit from same and then move on to their next Bad Idea when the last one turns out to be the disaster its opponents predicted?

It's also interesting to note that those who support Bad Ideas seem to be people unaffected by them?

For example, how many TriMet honchos actually ride the bus/train/streetcar? Or even drive themselves around town? Think you're gonna find Charlotte Lehan on the Mystery Train?

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