City of Portland debt is rising faster than condo towers
Part of what prompted our ongoing study of the City of Portland's long-term debt was our perception that the debt was growing more rapidly than ever before, and that it was outstripping population growth within the city limits. Now that we have a pretty good grasp on the current debt situation -- $4.4 billion of long-term debt, and climbing -- it's as good a time as ever to look at past years and confirm or disprove this perception.
As a comparison measure, we downloaded the sales document -- the "preliminary official statement," or POS -- from the city's early 2001 bond offering, when it borrowed almost exactly $100 million to expand our white elephant Convention Center, against the clearly expressed wishes of the local population. In that document, the city disclosed the debt it had outstanding as of January 1, 2001, pretty close to seven years before the date of the most recent POS, which we have been studying over the last 10 days or so.
The comparison of the two reveals these figures:
The increase in all categories of long-term debt is stunning. Seven years ago, the city's long-term bonds and "interim" financing (which is later turned into long-term bonds) stood at around $1.8 billion. Today, they're at roughly $2.6 billion -- an increase of 42.41 percent over seven years, or a compound growth rate of 5.18 per year. The city's unfunded police and fire pension liability has grown even more frighteningly. The figure the city gave at the end of 2000 was $976 million, compared to today's $1.8 billion -- an increase of 84.63 percent over seven years, or a compound annual growth rate of 9.16 percent.
During these seven years, the city's population has grown from 513,325 to 562,690 -- a compound annual growth rate of only 1.32 percent. Which means that the debt per resident has gone up by a compound growth rate of 5.27 percent a year.
Put another way, despite the growing population, the average individual Portlander's share of the city's long-term debt, expressed in dollars, is growing at a rate of 5.27 percent annually. It's gone up by 43.3 percent over seven years. If your credit card debt was $10,000 in 2000, and now it's $14,330, how would that make you feel? More and more of what we pay in taxes is going to pay principal and interest on money that's already been spent, and as a consequence less and less of what we pay is available for the ongoing needs of running and maintaining the city we have.
Here is a comparison of the total long-term debt on the dates of the two bond offerings:
Pretty sobering.
The rapid growth of the debt -- and the City Council's blindness to its utter lack of sustainability, as indicated by the proposed east side streetcar expansion, continued folly in the SoWhat district, and the coming debacle known as North River District -- is especially troubling in light of the awful reality in the condo market, outlined in today's O. Much of the city's "urban renewal" debt -- $600 million, and about to increase by another $100 million or so -- is supposed to be paid out of the property tax "increment" that arises from condo development and rising property values.
Problem: The condos aren't selling any more; suddenly, their values are dropping, not growing. Not only does this mean that the projected increases in property values on which the borrowings are based may not be forthcoming, but it also indicates that some of the taxpayers who have invested in the condo developments may find themselves in such dire straits financially that they won't be so prompt in paying their taxes. (Buildings don't pay taxes, their owners do -- if they can.)
Can you smell a perfect storm? The people who own the city's bonds may very well get paid in full and on time -- hence the city's favorable "bond ratings" -- but what kind of city will Portland be when far too much of its tax revenues is going out to pay off old debts, and not enough is available for ongoing basic services?
The taxpayers of Portland are constantly being told that all the public dollars being siphoned off to pay for infrastructure, streetcars, and an aerial tram [rim shot] in the new condo jungles are actually "investments." That may be true, but they are already looking like investments in overpriced dot-com stocks. And unfortunately, they were purchased with borrowed funds. When the margin calls come in, somebody's fortunes are going to be ruined. Guess whose.
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Comments (35)
I am voting for Sam the Tram, He has been there for 10 years, he will fix this mess.
Posted by meg | October 9, 2007 6:28 AM
Meg,
I suggest you read the paper. This was in the tribune a couple of weeks ago the link is attached. Sam is part of the problem not the solution.
City to the rescue?
Testifying to the council Thursday, Commissioner Sam Adams suggested the city might be willing to help make up the difference.
The idea is not without precedent. After regional voters defeated a bond measure to expand the center in 1998, former Mayor Vera Katz worked with Metro and Multnomah County officials to increase regional hotel, motel and motor vehicle taxes to fund it and a number of other programs, including capital improvements at PGE Park and the Portland Center for the Performing Arts.
Although Adams said he was speaking only for himself, he suggested the Metro councilors talk with the city commissioners about the project before making a final decision.
http://www.portlandtribune.com/news/story.php?story_id=119066935783169900
Posted by John Capradoe | October 9, 2007 6:49 AM
Jack,
My hats off to you on being able to decipher this mess the COP leaders have laid upon Portland. And people wonder why potholes, city services, (add yours here),are not being addressed. Why can't someone, anyone be held accountable???????
Posted by DB Cooper | October 9, 2007 6:56 AM
I had drafted a response to this post that focused on my pessimism as to Sam and his ilk having the integrity and ability to say no to the flavor of the week public works projects and to say yes to bringing the city onto an even financial keel.
I decided not to post it.
However, I am looking more and more forward to my retirement, so I can get out of this city and stop pissing away my hard earned money, via the COP, on poorly conceived very expensive projects, and fat retirement and disability programs for twenty year retirees. But I am only 16 years into my career, which will likely span at least 30. I am tired of paying taxes to this city only to see the money wasted by people who haven't a clue what it is like to actually work, and raise a family here.
Posted by Simon | October 9, 2007 7:44 AM
Jack,
I think it's time for you to put the law books aside for a few years and run for mayor.
Posted by dave g | October 9, 2007 8:52 AM
JB is the new Bud Clark.
Posted by J | October 9, 2007 8:59 AM
I am blaming Sam the Tram, He has been there for 10 years, he will make this mess worse.
Can someone please explain why he has such a large base of support?
Posted by Peg | October 9, 2007 9:03 AM
Peg: Because he's relatively young, good looking, charming and has a penchant for publicity stunts like climbing out of aerial trams. He's vibrant, likable, exciting and is incredibly skilled at blowing sunshine up the creative class/condo crowd's bums.
Posted by Random | October 9, 2007 9:19 AM
Random,
That's all well and good, in a twisted way, but doesn't it also take a lot of very naieve and impressionable voters?
Posted by Peg | October 9, 2007 9:42 AM
That it does and Portland has plenty of those.
Posted by Random | October 9, 2007 9:51 AM
This is very interesting. You've succeeded in making us more aware of just how much debt our local governments are incurring, in a way that we can easily understand.
However, I'm curious. What level of debt, on a voter or per capita basis, is too high in your opinion? And how did you arrive at that figure?
Posted by Metro Watcher | October 9, 2007 9:59 AM
Vote for Sam the Tram= Sarcasm, sorry to confuse.
Posted by meg | October 9, 2007 10:19 AM
However, I'm curious.
You're also highly redundant. You say the same thing post after post.
I think that the debt level we have now is too high, and rising too quickly. We need to spend less, especially on garbage like what passes for "urban renewal" in these parts.
I think it's time for you to put the law books aside for a few years and run for mayor.
Couldn't afford it. I don't have a pension already coming in, like two of the council members; or inherited wealth, like two others.
Or severe neuroses, like the fifth.
Posted by Jack Bog | October 9, 2007 11:23 AM
But Jack, how can you say it is "too high"?
Too high means comparing it to what? What you think is the right level? Which is what?
You know quite well that your "family credit card" metaphor used at the start is inappropriate: government spending and borrowing is nothing like a family's checkbook.
I agree with others: you've done valuable work here. But without a context--some comparison to what seems to have been a sustainable level of debt in other cities, it's hard to conclude what is too high or too low.
Posted by paul g. | October 9, 2007 11:53 AM
******But Jack, how can you say it is "too high"?*****
There is good debt and there is bad debt. Good debt usually means debt which grows the common good. Like borrowing to buy a house. Bad debt is that which does not. Like borrowing to buy a Porsche.
So if you belive that soulless condos and tinker toy streecars are not contributing to the public good, borrowing to buy them is by definition bad debt. Rememebr the question isn't whether you can afford to pay off the Porsche but whether you are doing yourself any good in the long run by buying it.
Greg C
Posted by Greg C | October 9, 2007 12:00 PM
I miss the good old days when developers bore the risk of failure and possible bankruptcy when costs exceeded budget and the end result did not produce sufficient income to succeed. Remember the Pacific Coal Port Facility and WPPS in Wash. By subsidizing for profit development the city shifts risk of failure upon the taxpayers for the benefit of developers. Risky development should never be subsidized period. From a simpletons perspective (that's me) the City now has a bunch of expensive toys and like all toys they will require maintenance and care forever. When the bill comes due the toys are seen in the light of reality as the mediocre crap they are. Enjoy.
Posted by genop | October 9, 2007 12:15 PM
But without a context--some comparison to what seems to have been a sustainable level of debt in other cities, it's hard to conclude what is too high or too low.
One problem is that the jury's still out on what's "sustainable." If Seattle's in just as bad shape as Portland, what does that prove? Not much.
Posted by Jack Bog | October 9, 2007 1:31 PM
Sigh, this is so sad when you look at how much debt has grown - roughly 7x the growth of population. I think by this one acid test alone, it would seem we should do something about the growth of debt?
Who really cares if other cities are screwing themselves also? Why not just focus on what we can control instead of the straw-man "we're not as bad as San Diego" argument.
This reminds me of that CoP audit they were proud of that stated the number of CoP employees per citizen has grown very little. Which means 0 growth in productivity/efficiency to me.
Posted by Steve | October 9, 2007 1:52 PM
You're also highly redundant. You say the same thing post after post.
Hey, it wasn't me this time. [I stopped trying to raise this point after you erased my earlier post without comment. ]
I think what MW and Paul G. are trying to say, however, is that the argument would be stronger if you could show that our level of debt is in the top X% of US cities, or above some advisable benchmark. This matters because who's to say that we weren't UNDER-investing 7 years ago? If my debt goes up 10x because I bought a house, that's not a bad thing, but if it's because I ate at Bluehour every night, that is.
I actually think you're onto something here, but without context City Hall can just dismiss it. With context, they might actually have to answer for it.
Posted by Miles | October 9, 2007 2:07 PM
Portland's city charter should require a public vote on all TIF financed urban renewal districts before money can be borrowed.
Tigard and Beaverton require a vote to approve them. It's still possible to pass urban renewal (Tigard just did), but it sure makes the politicians sharpen their pencils before they ask the voters' permission.
Lake Oswego will be voting on whether to add urban renewal vote requirements to their city charter this November in M3-269.
Portland needs something like this.
Posted by Pinto | October 9, 2007 2:08 PM
"It's still possible to pass urban renewal (Tigard just did), but it sure makes the politicians sharpen their pencils before they ask the voters' permission."
Easy now. Tiagard didn't sharpen their pencils. They took the play book and consultants from the League of Oregon Cities and sharpened their misinformation to get their UR plan passed.
So completely dishonest it was that they called the plan a $22 million UR district while their own plan forcasted costs of $39 million during the first 20 years with additional years and millions more from property taxes needed to retire the debt.
Sound familliar?
It had all the lies perfected at the PDC SoWa and the LOC.
"No general fund money will be used"
"No new taxes are required"
"All the revenue will come from the UR development whcih won't happen without the UR"
"School funding won't be reduced".
Search Urban Renewal in Oregon and notice the same characters and rhetoric used by every city.
Lake Oswego will be voting on whether to add urban renewal vote requirements to their city charter this November in M3-269.
Portland needs something like this.
Posted by James | October 9, 2007 2:32 PM
Good debt usually means debt which grows the common good.
I think the fundamental problem is that definition of what the "common good" actually is. On one hand, you can grow the common good by getting educated, keeping a job (or creating your own), maybe buy a house, have some kids, etc. Contribute in a positive way to society.
Then there are people like the ones who run Portland that are so blinded by ideology they see the "common good" spending on pet projects they "feel" are needed to make life better. Trains. Trams. Art on the streets. That stuff is all fine to a point, but after the basic needs are met. But doing them instead of fixing roads & such is just stupid. Then do worse things like running small businesses out of town.
Honestly, in Portland, I think a small business has more to worry about from City Hall than any Walmart moving into the neighborhood.
Posted by Jon | October 9, 2007 3:16 PM
Good points James.
Maybe Tigard's UR could have been better, but I believe that without a public vote it could have been much worse.
At least the voters got the chance to be hoodwinked.
If we don't start having regular public discussions (via elections) about how UR can drain the resources used to pay for core services, this movable scam will continued unabated.
Posted by Pinto | October 9, 2007 3:35 PM
Jack = Insatiable Infomaniac?
Posted by Chris Coyle | October 9, 2007 3:44 PM
without context City Hall can just dismiss it. With context, they might actually have to answer for it.
Ha ha! That's a good one. This is Portland -- the stupider, the better. Go by streetcar!
Posted by Jack Bog | October 9, 2007 4:22 PM
So Jack please address the U of O boondoggle being financed with 200 million in State of Oregon bonds. As a "sporto" type does it make you feel conflicted? I am genuinely curious to read your thoughts on the stadium deal. Couldn't resist the sportsfan jab at you though. Please forgive me.
I have real issues with learning and dollars that should go to it being sacrificed on the altar of personal vanity (Phil Knight's donations) and "our" collective vanity (valuing college team performance over educational priorities). This seems to be a theme in oregon, though not as much so as elsewhere - for instance the Rose Garden, the failed (thankfully) drive for MLB, and now this sadium proposal for the football cult.
So Jack, what do you think of public financing for college/university athletics facilities? It sure doesn't benefit me at all. I can see no public good in it, nor any educational value. If anything, it encourages people to waste gas to go watch games, and to sit on their butts and get fat at home watching them on TV. Bad public policy!
Posted by Simon | October 9, 2007 5:08 PM
Some very large issues there. Reminiscent of the discussion of many men's coaches' salaries -- outrageously high. Sports fans will tell you, it's worth every penny.
Posted by Jack Bog | October 9, 2007 5:59 PM
Thanks, Miles. My only sin was to use the couplet, "I'm curious." I really didn't mean to offend Jack. He's onto something here. It's just that I know there is not a consensus about the level of debt a particular government - or group of governments - can incur before they can rightly be branded irresponsible. And believe me, I agree with Jack regarding the use of free debt capacity to finance condo projects.
Posted by Metro Watcher | October 9, 2007 6:44 PM
I meant, "about the issue of using free debt capacity to finance condo projects."
Posted by Metro Watcher | October 9, 2007 6:58 PM
You want another city to compare Portland 2007 to? How about Portland 2000? A 43.3 percent difference.
Posted by Jack Bog | October 9, 2007 7:09 PM
I've got an idea: a bond issue dedicated to the improvement of existing sand & gravel streets and the construction of sidewalks for THE CHILDREN to walk/play on.
Sam's all about transportation safety, right?
Alternately, how about public transit tax that would be collected from all riders of public transit, rather than simply taxing everybody who owns a house.
Posted by Mister Tee | October 9, 2007 8:26 PM
So the questions about how much debt is "too much" are well taken, and maybe a frame of reference for thinking about that would be how much this city borrowing adds to the debt load of the "average" household in portland. The median income in Portland, which is around $65,000. Most of those "average households" already have pretty hefty mortgage, credit card & student loan obligations. Slap another $7,800/person loan on top of that and, well, you get the picture.
Posted by Frank | October 9, 2007 9:12 PM
Why is every one so concerned, the answer is obvious. We need more condo's, convention center hotels, and the sustainable transportation of light rail and street cars. These capital heavy projects will surely bail out the city. I wonder if debt servicing was in Potter's visioning project.
Posted by gl | October 9, 2007 9:42 PM
Judge: "You are charged with embezzlement. How do you plead?"
Dependent: "I only took a little so that no one was harmed. And it was no more than what is routine in other similar situations."
Judge: "I'll accept that as a guilty."
Posted by pdxnag | October 9, 2007 10:21 PM
Bring back Mildred Schwab.
Posted by JerryB | October 10, 2007 3:19 AM