The saddle's about to get heavier
Last week, when we were summarizing the City of Portland's long-term debt load ($4.2 billion and counting), we noted that the Portland school district and other local taxing authorities also have a large amount of debt outstanding. The figures we had for the school district were a little sketchy, however, because they came from a city bond sales document, and not from the school board itself.
An alert reader of this blog has noted that, like the city, the school district has got its own bond sales document -- a "preliminary official statement" -- currently floating around. It's about to borrow more than $15 million to pay damages to the janitors that it illegally fired, and it will raise that money by issuing bonds payable over the next seven years.
In the POS, as it's known for short, the school district breaks the news to us on how much long-term debt it has outstanding. It's there on page 5 of the document (page 9 of the pdf file). There are $39.5 million of "full faith and credit obligations," and a whopping $476.4 million of pension bonds (apparently, money the district borrowed some time ago to pay the state retirement fund for retirees' pensions). Apparently there are some miscellaneous long-term debts out there, because those two amounts don't quite add up to the total long-term debt reported, or $533,208,079.
The school district says it has a population of 440,000. That being the case, the school district has $1,211.84 of long-term debt outstanding for every man, woman, and child who lives in the district. If you also live within the city limits of Portland, you can add that to the $7,516.02 of long-term debt assignable to you from the city alone. And so with just the city government and the school district, we're up to $8,727.86. For a family of four, we're pushing $35,000, and that's before we get into Metro, Multnomah County, Portland Community College, and Tri-Met, who are also racking up the loans.
Since we drew up a debt clock for the city, we may as well draw one up for the school district as well. Here it is:
Those figures include the $15 million of new bonds whose proceeds will be used to pay the janitors. The interest on those bonds will be something like 4.25 percent, I suspect -- that would be more than $600,000 a year of interest at the outset. Plus an underwriter's commission and lots of lawyer fees, of course. Just another day in local government around Portland.
Warning: Do not try this at home, with your own personal finances.
| Posted at 4:21 AM | Permalink |
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Comments (12)
That's the liability side...what's the asset side look like?
Posted by Green eyeshades | October 3, 2007 5:50 AM
The asset side is pretty much irrelevant. If the school system went bankrupt and has to cash in assets to pay off debt - well, then there is no more public school system, is there? What is relevant is the size of the debt payment stream relative to the statutorily capped tax revenue stream, and how much of that is left over after debt service to actually pay for teachers, buildings, books etc. That equation is looking worse all the time.
Posted by Frank | October 3, 2007 7:33 AM
Actually Frank and Green,
There is an asset side of this. Most of the schools in Portland are 60 plus years old, and since the maintenance cutbacks in the 80's have not had good preventive maintenance. So essentially the value of the asset is the land, and in many cases the buildings are a liability against that asset to remove and dispose of. As I pointed out in the City of https://bojack.org/2007/09/portland_a_city_deep_in_hock_1.html#comments
Portland, they have "Burned" roughly half the City's 4 billion in assets, with poor maintenance practices, I would suspect the schools are in similar shape.
Posted by John Capradoe | October 3, 2007 8:42 AM
They're not going to liquidate many assets to pay debt -- maybe a million or two for some obsolete school buildings. No, they're going to cut services and quality, and raise taxes. A great city we're building.
Posted by Jack Bog | October 3, 2007 9:31 AM
Jack, keep on calculating! We all need the big picture right in front of us. Please do the dollar liabilities and then maybe you can find someone to work on the future costs like those to fix or replace school buildings.
I have a condo and we hire a guy to do a reserve study for us. He calculates how much money we'll need each of the next 30 years to replace roofs, plumbing, paving in parking lots, etc. Currently it's very roughly $1000 per year from now on for my little 2 bedroom condo. That's on top of the HOA dues which now run $2112.
The same concept applies to City, County, School District etc. infrastructure. Except it's a lot bigger than my little condo. Look around at public buildings, bridges, roads, schools.... Kind of sobering.
Posted by Don | October 3, 2007 9:36 AM
Go DON!!!!
You are getting it.
You have to take care of the stuff you own or it becomes worthless.
The City has been using the money it should be allocating for repair of streets and structures and redirecting it, so it has no reserves and we will pay a double whammy someday having to repair not only the new stuff we built but could not afford to maintain but the stuff we failed to maintain because we diverted the service money to all the new stuff.
Posted by John Capradoe | October 3, 2007 9:40 AM
I did try to find some answers, and piecing together numerous materials. This is my first cut at local debt benchmarks.
Depending on the population figures you use, the debt per person nationally is about 23% of the median household income. Using the school district population number it is 27% as there are other school districts in Portland Proper, this is probably close.
What is distressing is the growth since the 60's
Local Debt by hear as a % of Medium income is as follows:
1960-1960 1 %
1981-1980 4%
1998-2000 10%
2006-7 23%
Portland 27% (using 440,000)
21% (using 562,000)
Now that's scary considering the % of our bond debt held outside the country.
Posted by John Capradoe | October 3, 2007 9:55 AM
The cost "sustainability"?
Priceless!
Posted by Ben | October 3, 2007 10:02 AM
Hmm...I think POS might stand for something more descriptive.
Posted by Sebastian | October 3, 2007 10:16 AM
One good thing about this particular debt/obligation is that it encouraged the teachers to quickly agree to a contract before the budget was finalized. The plan to bond it was certainly part of the context for the last bargain.
The POB proceeds are mostly still in an account with the district's name on it. It is held for security to cover pension obligations not yet due and payable . . . as if certainty of payment is not available in the court system when it does become due and payable. If the account were to fall victim to an Enron/funny-hedge disaster the underlying obligation for the pension payments would be no less and no more. The bonding did not function like a refunding/refinancing to replace a prior obligation with a substitute obligation. It is still an ASSET of the district, notwithstanding any contrary argument.
Posted by pdxnag | October 3, 2007 10:37 AM
Jack, here I am thinking you're a bleeding heart liberal, borderline socialist and now you're complaining about Portland spending an enormous amount of money of things we don't need! You are sounding like a conservative!!!!
Posted by mike | October 3, 2007 4:55 PM
There you go mike, labels aren't going to get you anywhere.
Posted by Ambrose Burnside, Ret. | October 4, 2007 8:33 PM