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Thursday, July 28, 2011

Familiar story, unfamiliar source

Portland's city auditor has finally figured out what we've been saying for nearly four years now: The city has borrowed too much money, and it needs to break its addiction to debt before it falls apart financially. The city money guy, who recently abandoned ship, thinks the report is "one of the worst audits I've seen done." Of course he does.

We're happy somebody acknowledged the truth. Counting unfunded pension debt, the city owes $11,000 for every man, woman, and child who lives in Portland. That's ridiculous.

The report also repeats another of our long-time observations: Of the property taxes collected by the city, about a quarter goes to pay retired police and firefighters' current pension benefits, and another quarter goes into the black hole known as "urban renewal." That's also crazy.

Comments (14)

Poor guy will probably end up with a horse's head in his bed.

Somebody has a backbone! This is definitely news. Hope it is catching.

I'm amazed that Sam Adams hasn't started screaming "Off with his head!" yet.

(It's HER head. The auditor is a woman.)

Interesting graphic on page 7 of the report showing where shares of each dollar go. I'd bet maybe 1 Portlander in 100 understands how much we really pay towards urban renewal.

"(It's HER head. The auditor is a woman.)

Interesting graphic on page 7 of the report showing where shares of each dollar go. I'd bet maybe 1 Portlander in 100 understands how much we really pay towards urban renewal."

Actually, the report was prepared by Drummond Kahn, a man. Whatever the City Auditor actually does is completely unclear to me.

The auditor is Lavonne Griffin-Valade. Drummond Kahn works under her direction. She decides what to audit and he does the audit, near as I can tell.

After too many years of Gary Blackmer, who was basically a cheerleader for the city council, it's refreshing to have an auditor who is digging in to things.

She busted Leonard's water utility spending. She also busted the latest OMF computer fiasco. The question is, do the audits have any teeth?

Besides playing the Cassandra, does anyone in City Hall believe this enough to do anything?

"She busted Leonard's water utility spending." So what? It's still going up 80% over the next 5 years.

"Gary Blackmer, who was basically a cheerleader for the city council" I think he was basically told to make stuff work and don't ask questions - Kinda like Wu's staff.

I mean when you get guys like Randy or Sam who think they are a law unto themselves, we're in for big trouble. Especially when interest rates start clicking up abd those re-fi amounts start growing exponentially.

As far as Ken Rust, what's he going to say - "Yes, I was at the helm of the Titanic?)

I'm amazed that Sam Adams hasn't started screaming "Off with his head!" yet.

Hes on vacation according to the story.

Kind of a mild warning, but at least it's getting in the public record.

Sort of like,

"We are mostly OK now, but when we hit the ground from our 10,000 ft. fall it's going to sting a little."

OK, my bad..dead horse head in HER bed. That is how much attention I pay to whoever is auditor of the moment, and how much influence he or she actually may have.
Sam is on vacation; is Sam ever NOT on vacation?

I'll say it:

Lavonne Griffin-Valade for MAYOR!

The report fails to show the remaining balance of the City of Portland side account entrusted to PERB and OIC. It was funded from the proceeds of the Pension Obligation Bonds. It remains an asset of the city and it is only reduced over time to meet PERB demands that are calculated precisely the same regardless of whether a given government employer issued such bonds or not. The side account can also go up or down based on market conditions. What is the status of this account, and have investments matched precisely the projections?

This is a particularly important question given the following advocacy:

There is a public interest in ensuring employees have secure retirements and that retirement benefits are adequately funded. Prefunding the obligations increases the security of those benefits, allows managers to allocate costs on an annual basis, and preserves intergenerational equity by paying for benefits as they are earned.
We recommend that the Office of Management and Finance reconsider options to pre-fund and/or reduce the costs of FPDR pension and OPEB liabilities. This may include establishing goals to achieve particular funded ratios.

This will necessarily involve a choice as to whether to invest in safe treasuries versus equities, and who would be responsible to make investment decisions. The elaborate scheme set up for PERS to invest in equities and simultaneously to avoid the constitutional prohibition on government taking an interest in equities involves the use of a pseuo-independant entity.

If the city abandons the pay-as-you-go method in favor of a funded scheme this will place the city at risk for investment loss.

If the city "pre-funds" -- i.e., issues bonds for the express purpose of investing them -- will the accounts be owned by the city until paid out over time, in like manner to the side accounts? Will the bond proceeds be merged for investment purposes with the PERF? Or, is the PDC envisioned as a complete alternative placement to the PERB and the OIC? Will the Office of Management and Finance play the lead role in investing the proceeds, mimicking the State Treasurer's role in OIC?

The report fails to show that the legal obligation to make a pension payment some time in the future is in any way less enforceable than an legal obligation to make a payment on a bond. The certainty and security of payment exists today.

Again, the city cannot under the Oregon Constitution take an interest in equities. The beneficial owners would have to be the employees, if the city or state were to manage the funds. If the beneficial owners are the employees then the IRS would insist that the fund be allocated to individual accounts for the employees. It would transform the pay-as-you-go scheme for tier one and tier two safety workers into a funded plan. You can't have both.

If the city were to terminate the current pay-as-you-go scheme entirely, then measure today what is owed for past work and settle, this could involve a bond that is paid out to the employees in full and with a full release from further liability to them for all past work. The employees could then choose where to invest their money, voluntarily, with the state's investment fund (without any guarantee on returns) or with someone else entirely.

Issuing a bond would not be required. The pension payments are not due and payable until some future date, and those pension payments would roughly parallel both in time and amount any payments made on a bond.

If a bond is issued to pay on the obligations now it must be only to achieve complete finality as to pay for past work. Otherwise the old obligations would remain just as they were, and we add risk to the city in the event the investment guesses fail to meet expectations. Again, the current report fails to detail the status of the side accounts from the proceeds of the outstanding Pension Obligation Bonds. There is not even a footnote or URL that would point to the account details on a state web site. Expected returns did not at all times meet expectations. It would be folly to ignore this risk for any new investment venture, funded through city debt.

Ken Rust, Chief Administrative Officer, says: "Neither do we agree with the Audit's recommendation regarding pre-funding of pension and employment benefit liabilities."

"In the absence of a change in state law that would enable the City to invest in equity securities, pre-funding options would only increase the cost of these programs without the benefit of higher investment earnings that could offset costs over the long run."

Right on Ken. Can we get a note too about the status of the excluded side account?

will you PLEASE encourage someone to PLEASE write a bonds and pensions and debt for Dummies post? It must be VERY simple. Short sentences, superb graphics, preferably involving coartoons and moving colored streams. This last post feels like a slow electric chair that we all must occupy to agonize slowly in the information stream. Some of us just pass out at the mere prospect of belting up.

The PDC wants more play money. They don't deserve it. Drummond Kahn is acting as their advocate.

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