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Friday, July 8, 2011

City of Portland still living on plastic

The City of Portland's scandalously unfunded police and fire retirement system is so broke that every summer is borrows eight figures for about 11 months to cover holes in its cash flow. This year it's borrowing $16.7 million; last year, it was $21.8 million. The city, which gets a big wad of property taxes every fall, doesn't pay off the notes until the following summer.

The bonds don't pay much interest, and the stated transaction costs of the annual trip to the well are probably less than $100,000 a pop. But it's still an ongoing annual expense, and one wishes that the city could wean itself from borrowing for something so basic. Of course, since there's no money set aside for most police and fire pensions in Portland, any dollars that go to retirees are taken out of this year's budget for essential services, such as the current city police and fire payroll. As is typical in Portland, the City Council would rather borrow than face up to reality.

Although the city doesn't show it on its website, it does have a sales document current floating around for this year's bond offering, and we have posted a copy of it here. One interesting aspect of the latest offering statement is a slight change in the way the city reports its outstanding debt. This page, which shows all of the debt, now includes the city's shadowy lines of credit in the main tally. Previously, those weren't in the table -- they were discussed only in later text. The bottom line is pretty sobering: $3.34 billion (with a "b") as of June 1. That's about $40 million higher than where our City of Portland debt clock (in our left sidebar) pegged it as of that date. In other words, it's about $67 of difference for each man, woman, and child who lives in the city limits.

Anyway, we've adjusted the debt clock accordingly, shaving off the difference between last year's pension cash-flow IOUs and this year's equivalent, but pushing the base number upward from what we had to what the city current shows. We're sticking with our 5% annual growth rate for long-term bonds and interim debt, because if anything it seems to be conservative. The bottom line is about $10,975 of long-term debt (including unfunded pension liabilities) for every resident of the city.

And that's just the debt of the city. Not the state, the county, the school district, the Port, Tri-Met, Uncle Sam...

Comments (4)

Interesting that, if I read correc tly, this year's b proposed borrowing is LESS THAN last year's.

One might expect that the borrowing would increase each yearfor about another 20 years and then begin to decline, given the structure of the two work forces (PFR and PPB) and that the slight changes to the programs about 4 - 6 years ago kick in slowly with new hires.

Why the decline in borrowing?

The changes in the retirement system may well account for the decline in borrowing. PFR is an unfunded system, and has no cash to start any particular year. PERS, into which new firefighters and police officers have been put for at least five years, has a fully-paid, amortized employer contribution.

As each year goes by, and as actuarial tables march inexorably on and a greater percent of employees are PERS and not PFR, and as PFR retirees pass away, expect to see the City's unfunded liability attributable to PFR decline.

The city that works - until you're about 85 at the rate this is going.

"Why the decline in borrowing?"

My guess would be lower interest rates today vs. LY, which effectively drops the price of debt.

The financed amount is still growing (since they never pay these down before borrowing more) which is the problem once the interest rates click up.

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