State goes to the well to borrow $229 million
We've spent a lot of time messing around with all the debt that the City of Portland has been racking up in recent years. Lately, the city has stopped issuing bonds for a while, although its unfunded liability for police and fire pensions continues to grow.
Meanwhile, down in the state capital, we have a new state treasurer, and he's heading right out to the usual underwriter suspects to peddle around $229 million of bonds this week. The state will be borrowing some of the money on a 30-year term. Most of the loan will bear interest that is tax-exempt for both state and federal income tax purposes, but a small portion of the interest will be taxable for federal purposes only. For what it's worth, and that ain't much, the state expects that Moody’s, Standard & Poor’s and Fitch Ratings will assign ratings of Aa3, AA-, and AA-, respectively, to the bonds.
The official bond sales document is here, and it comes from the state's debt management gurus, whose main page is here. Scrolling down the first page of the bond document, it sure makes you feel secure to see that Merrill Lynch name there, doesn't it?
But I digress. What will the new money be used for? The biggest single project, at $73.6 million, is a new "wireless interoperability network" for the state police. Next in size are $55.3 million for deferred maintenance at state universities; $34.8 million for a new state psychiatric hospital; $34.6 million for deferred maintenance at a number of state agencies; and $17.1 million for deferred maintenance, a training facility, and design work in the state prisons. The full breakout is on page 20 of the bond sales document.
On a quick run-through, it looks to me as though the state already has $11,368,887,000 of long-term debt outstanding, and that is assuming that the state employees' pensions are all adequately funded. (See page 99.) With this week's new bonds, the debt level will stand at about $11.6 billion. The state's population currently sits somewhere around 3.82 million, and so the state debt load works out to $3,036 per resident.
If you live in Portland, of course, the city's debt per capita is more than three times that much ($9,300 at this writing). But don't forget, for that you get to go by streetcar.
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Comments (20)
You know where the city borrows all its money?
Merrill Linchpin.
Posted by Bill McDonald | February 10, 2009 6:55 AM
These stimuli programs (fed, state or city) are getting to be the same refrain:
1) We need to do something now
2) We need to drop buckets of borrowed money out of a plane and hope the economy goes
3) Meanwhile everyone shoves their pet projects thru
I still see the pork and Earl griping that spending on bikes is crucial to the economy.
I can see it coming - Building two stadia and streetcars is vital to the economy.
At the same time, lets use up all our credit line and let the unfunded liabilities grow - We really should give candidates IQ tests.
Posted by Steve | February 10, 2009 7:11 AM
The IQ tests should be given to the voters who continue to put these people in office.
Posted by Richard/s | February 10, 2009 8:22 AM
The biggest problem here is we'll be paying $73.6 million, for a $40 milion "wireless interoperability network" ,
$55.3 million for a $28 million deferred maintenance,
$34.8 million for a new $20 million state psychiatric hospital;
$34.6 million for $18 million in deferred maintenance at a number of state agencies;
and $17.1 million for $9 million deferred maintenance, a training facility, and design work in the state prisons.
Over and over again public projects in Oregon are grossly inflated in cost due to absense of oversight and well intended but never evaluated requirements.
Posted by Ben | February 10, 2009 8:27 AM
Deferred maintenance? Nothing less than total mismanagement of the funds that were available in the first place. "Never spend money on a hot tub when the roof is leaking". Boy, is that on the money.
"Over and over again public projects in Oregon are grossly inflated in cost due to absence of oversight and well intended but never evaluated requirements"
..and sometimes they are under estimated to get a foot in the door of an unsuspecting taxpayer. I'll bet the cost for a complete State psychiatric hospital would come in closer to 100M mark. Then there is the staffing issue......
Posted by Gibby | February 10, 2009 10:05 AM
"and sometimes they are under estimated to get a foot in the door"
Like Urban Renewal schemes, the Tram and WES.
Unfortunatley the worthy projects, likely the Mental hospital, may be understated too, and those are usually floundering for funding as the many boondoggles step in line in front of them.
A new revloution to reduce and fine tune government and it's spending is desperately needed.
Thomas Jefferson
When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe ..
Thomas Jefferson
The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.
Thomas Jefferson
It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.
Thomas Jefferson
I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.
Thomas Jefferson
My reading of history convinces me that most bad government results from too much government.
Thomas Jefferson
No free man shall ever be debarred the use of arms.
Thomas Jefferson
The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.
Thomas Jefferson
The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.
Thomas Jefferson said in 1802:
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
Posted by Ben | February 10, 2009 10:15 AM
Nostradamus Jefferson
Posted by Gibby | February 10, 2009 10:24 AM
Jack,
I'm not sure why I'm bothering to write this here, but I guess I feel the need to express my views on this somewhere.
I agree with your concerns over indebtedness at the state and local level. But I have to say I am absolutely astounded by the irresponsibility of the administration and Congress in moving forward on the stimulus bill.
Congress and the president are proposing an expenditure of over $800 billion--beyond the annual federal budget, which will keep on being spent, and beyond what has already been spent on TARP and the various bailouts. This total is almost unimaginable. The stimulus bill plus TARP is significantly more than the entire expenditures of the US since 2001 on the wars in Afganistan and Iraq and domestically on the War on Terror!
Many here have rightly criticized the fiscal irresponsibility of the prior administration and Congress. This takes us to a whole new place, where the discipline of an annual budget for the federal, state and local governments can be thrown out the window in one gargantual "do-over." (Well, hopefully only one, but once the genie is out of the bottle, this probably won't be the last of the bills like this.)
What happens if the country is attacked? What happens if some other massive calamity occurs. We are spending everything we can tax, plus borrow, plus print. The fiscal consequences of this will be very bad. The consequences to our freedom may be worse.
Bob
Posted by The Original BobW | February 10, 2009 10:27 AM
Hey, allow me to stimulate some thought.
The first $350 billion in TARP money has vanished and none of those who voted for it know where it went.
Help us! Thomas, Help!
Posted by Ben | February 10, 2009 10:35 AM
Instead of going to Indiana and Florida to sell the stimulus bill, Obama should be trying to sweet-talk Pelosi into going back to California to bake cookies for her grandchildren while others rewrite it. Apparently she didn't get the message about bipartisanship and not doing "business as usual."
Posted by Audaciously Hopeful | February 10, 2009 11:37 AM
Original Bob: It's always good to hear from you here. On your topic, which is certainly germane to the original post:It's entirely possible that, from a (later) historical perspective, this country will be seen to have come crashing down with the World Trade Center in 2001. Thinking about the consequences of the stimulus bill seems hardly more sobering than thinking about the consequences of having no such fiscal stimulus program. The numbers involved are large, but so (at least for the time being) is our GDP. With the stimulus bill, our debt as a percentage of GDP will go up, and our tax revenues will fall farther short of our expenditures, leaving a larger deficit. Without the stimulus? Economists on both sides of the political divide seem agreed that our economy will shrink and deflate -- with the same sort of consequence to the ratios that matter. Either way, it looks as if the party is over. Government spending, were it not indiscriminate, could position us for future economic growth. It's the indiscriminate, kid-in-a-candy-store nature of what the Congress has "crafted" that makes me pessimistic.
Posted by Allan L. | February 10, 2009 12:48 PM
President Obama had a good point last night: It wasn't the 1 dollar of risky loans. It was the 30 dollars they bet on it.
Derivatives. They could bring the whole thing down.
Posted by Bill McDonald | February 10, 2009 1:23 PM
In case you haven't heard about this, try wrap you mind around this for a minute: (He is talking about the meetings in September '08)
Rep. Paul Kanjorski D-PA:
"I was there when the secretary and the chairman of the Federal Reserve came those days and talked to members of Congress about what was going on… Here’s the facts. We don’t even talk about these things.
On Thursday, at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two.
The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened.
If they had not done that their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed."
Source: Balloon Juice
Things were so bad they even discussed martial law.
Enjoy your day....
Posted by mp97303 | February 10, 2009 1:25 PM
Hi Allan and MP,
I think the liquidity situation last fall was real. Hopefully the TARP did have something positive to do with prevention of a "panic" like we used to see in the 1800s. I also think we are in a recession now.
Having said that, business-to-business sales in businesses I am very familiar with remain reasonably strong. Credit is available but generally tighter in a lot of situations. Unemployment definitely is up and consumer spending is down, and there has been a big reduction in perceived wealth. Some parts of the country are in serious straits, but I think the situation for many parts of the country is not nearly as dire as some are suggesting.
The stimulus bill will probably create some construction jobs that wouldn't otherwise be there. It will have an effect on the velocity of the money supply. The package will probably preserve some government jobs, and may postpone some municipal bankruptcies but the additional governmental borrowing will adversely affect the availability of credit to everyone but the government. At some point, Congress and the president will inform us that it will be necessary to raise income tax rates, further dampening economic activity. The additional governmental spending will also impact the allocation of society's resources from economic activities that make sense without subsidies to activities that cannot happen without subsidies (and subsidies have a way of going to those who curry favor with the people handing out the subsidies). And if we face a true national emergency like a war or natural disaster, we will be much less able to mobilize resources to protect ourselves.
Recessions suck. Governmental borrowing and spending like a crack ho in an effort to "fix" the effects of de-leveraging caused by governmental and consumer borrowing and spending like a crack ho is a very bad idea. Economic dislocations have historically brought about cries for someone to "do something", and those somethings have usually resulted in a loss of liberty (sometimes in the extreme).
Bob
Posted by The Original BobW | February 10, 2009 2:14 PM
Bob, I agree that eventually the government will be forced to announce an increase in income tax rates; I hope that when it happens, it is equitable.
The feds, states and cities simply can't keep falling back on the short term panacea of handing out tax rebates and refunds in the hope that it will result in more spending or create more jobs. With less income and wary lenders where are the hundreds of trillions of dollars for infrastructure, bank prop-ups and the continuing conflicts in Iraq and Afghanistan going to come from (not to mention the money to pay government retirees)?
Our government has about as much chance of finding a money tree or a golden goose as Ponce de Leon had of finding the fountain of youth.
I can't decide if promotion of today's "remedies" more resemble the behavior of the ostrich, Aesop's grasshopper or the ancient alchemist.
Posted by NW Portlander | February 10, 2009 3:07 PM
Thomas Jefferson
It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.
You do know Thomas Jefferson died deeply in debt, right? At least his sentiment was correct, even if he couldn't practice what he preached. Did leave a helluva wine collection, although it was purchased on credit.
Posted by PMG | February 10, 2009 3:10 PM
Does anyone else get the impression that we are simply treating symptoms and not dealing with any actual root problems? You can cut the top off of a wart but you won't get rid of it; it will simply grow back and spread. Without meaningful reform, any money thrown at the current problem may well be dust tossed into the wind.
Posted by NW Portlander | February 10, 2009 3:11 PM
"I think the liquidity situation last fall was real."
I agree since I am in the RE business. Credit is a little easier to get, but I think the marketing idea of TARP helped banks loosen up a little. Unfortunately, I don't think any of the TARP money actually went to credit customers, rather to shoring up balance sheets.
This is my issue with the new panic. Even if we give away buckets of money (or a $1200 check) maybe 20% will get spent in the economy now. The rest will go to pork, subsidizing bad ideas, savings accounts or buying bills.
As far as buying things like houses or capital eqpt, I see no motivation in this spending bill at all. I'd heard rumors of a tax credit for buying foreclosed housing which is in the right direction. However, something changing the tax law to allow expensing capital eqpt purchases this year only would go further.
At least you know for each $1 of tax credit, you'd see $1 put into the manufacturing economy. Right now, we're going to run up another $800B of debt with a doubtful immediate payback to the economy.
Forget high IQ - I'd settle for a little orginality or creativity from Congress.
Posted by Steve | February 10, 2009 3:14 PM
What will the new money be used for? The biggest single project, at $73.6 million, is a new "wireless interoperability network" for the state police. Next in size are $55.3 million for deferred maintenance at state universities; $34.8 million for a new state psychiatric hospital; $34.6 million for deferred maintenance at a number of state agencies; and $17.1 million for deferred maintenance, a training facility, and design work in the state prisons.
Gosh, what a laundry list of useless items, especially the money for state universities. Who needs an education, after all? Surely not the children of any of the readers of this blog.
Oh, but wait, prisons? Notw that I can get behind. We needs more prisons. We need more initiatives from the likes of Sizemore, Mannix, and Crime Victims United to MANDATE spending on prisons without actually providing revenue.
But education? The heck with that elitist nonsense.
Posted by joe bob | February 10, 2009 3:15 PM
Two more huge, front page articles on the "Give Merritt Paulson Bigger and Better Toys" scandal today.
Both articles act like the baseball/soccer stadia are done deals and it's just a matter of where the Beavers will be located when they're ousted.
The new location being considered is the Rose Quarter.
The article, which shows the property under consideration, between N. Interstate and the river adjacent to the Coliseum, mentions that the City of Portland would own the baseball stadium. Mark Larabee, the Oregonian reporter who penned the story says, "The Rose Quarter is now in the running for a new minor league baseball stadium as the city and the Trail Blazers explore how to boost business in the underperforming eastside entertainment zone."
This is madness, given our present economic situation and excuse me, but we already own a perfectly good baseball stadium that was recently renovated.
The part that really made my eyes bulge was Merritt Paulson's statement that, "Obviously the Rose quarter is as central as it gets. It's got parking and ingress and egress all worked out."
Paulson has obviously not ever been caught in the game night traffic nightmare that regularly occurs on I-5 and Interstate as fans struggle to find parking and sit bumper to bumper waiting to pull off at the Coliseum exit. Anybody simply trying to drive north on I-5 at the same time has learned to wait or bring along reading material. His final sentence is pure fantasy. The addition of ballpark traffic to Rose Quarter, Coliseum and Convention Center traffic is almost guaranteed to create problems.
"Paulson has so far said he hopes to buy the Major League Soccer team with his own money but build the parks with bonds that could be paid back through rents on PGE Park and the new baseball park, ticket surcharges and shares of concessions. Paulson also hopes for state money and cash from the Portland Development Commission . . ."
Does Merritt Paulson even live in Portland or simply in some fantasy world of privilege and self-entitlement?
Posted by NW Portlander | February 11, 2009 2:26 PM