Portland water bonds sales pitch mum on Carollo
The Portland City Council just can't seem to put the city into hock fast enough for the politicians' taste. Here's the official sales pitch for the latest loan they're about to take out -- $74.6 million, to be paid back over 25 years, for various vaguely defined "capital projects" in the "water" bureau. It's going to happen next week.
It's interesting just what the Admiral and his henchpeople include as "capital projects" of the "water" bureau. Included in the "capital improvements plan" are:
-- maintenance and repairs of wells, which don't seem very "capital";
-- "rehabbing" of the water maintenance building ($46 million), which probably includes all manner of deferred maintenance;
-- throwing an unspecified amount of money at the city's new "emergency coordination center," which doesn't sound as though it has a lot do with water; and
-- $28 million for the "Willamette Crossing Project." Could that last one be water money for light rail? See you in court, Admiral!
Another fascinating tidbit from the bond statement is just how far the city's water system is already mortgaged, and how much more debt will be heaped on over the next four years. Counting the bonds that are about to be sold next week, the overall mortgage is up to $455.6 million. Eight years ago, that amount stood at $160.8 million -- even taking inflation into account, the mortgage has increased by around 235 percent.
It's even uglier if you think about the mortgage payments. Debt service on water bonds for the fiscal year just begun is expected to be around $37 million; the total operating revenues of the water bureau for the year are expected to be around $136.5 million. In other words, 27 cents of every dollar collected will go to pay off money that's already been spent. Four years from now, the debt service is projected to be a frightening $71.3 million a year, on projected operating revenues of $209 million, or 34 cents on the dollar. That means less and less available for actually running and maintaining the water system. Can you say "Nestle Waters"?
Then there's the bad news about Siltronic, the company that's pulling a silicon chip manufacturing line (and 350 jobs) out of its Portland operations. Check out the scary footnote on this page:
On March 9, 2012, Siltronic announced that it intends to stop producing 150 millimeter-sized silicon wafers at its Portland, Oregon location in the fall of 2012. Siltronic announced that it will continue to produce 200 millimeter-sized wafers at its Portland site. If Siltronic closes the Portland, Oregon factory, the estimated retail rate impact to ensure that revenues are sufficient to pay debt service and meet debt service coverage planning standards could be as much as two percent.
But don't worry -- they'll never fold up and leave Portland entirely. They love the business climate here.
Perhaps most noteworthy of all, and curious indeed, is the fact that the prospective bondholders are being told nothing about who the city's second biggest water customer really is. Our computer has been unable to find a single word of mention in the official statement about Carollo Engineers. You'd think the fact that this obscure private outfit is quietly using up hundreds of millions of gallons of water a year from the city's well fields is material information that the investors would like to know. Guess not. Here's the list of biggest water users -- Carollo's nowhere to be found. If it were on the list, it would likely be second from the top, with the difference between it and no. 1 about to get smaller.
In any event, while Portland keeps borrowing like a college kid with a new credit card, cities and towns all over the country are crashing financially, and several experts now warn that many of them will be defaulting soon:
"There's never one cockroach," says Marilyn Cohen, president of Envision Capital Management in Los Angeles. "Scranton tells you it wasn't just a California-specific problem. There's probably other Scrantons out there and more Harrisburgs out there. Individual investors need to be very careful and very selective of what municipal bonds they want to own."
The new Portland water bonds are rated Aaa -- the rating agency's way of saying there's relatively little risk for the banks and other investors who may buy them. But that's what they said about a lot of bonds four years ago, just before the collapse of the financial markets. Time will tell whether they're right about Portland water.
If there were a standard-of-basic-services rating for Portland, however, you can bet that it would not be Aaa. The banks will most likely get paid -- the Sam Rands are committing Portland residents to pay come hell or high water, so to speak -- but the streets and the schools will probably never improve. Go by streetcar!
| Posted at 8:45 AM | Permalink |
|
Comments (22)
They keep ordering the champagne, but they'll be nowhere to be found when the check finally comes.
"$28 million for the "Willamette Crossing Project." I really want this lawsuit to get under way.
Posted by Snards | July 17, 2012 9:19 AM
All the commissioners should be subject to having these outrageous debt service plans reviewed by an independent board.
I would call it the Portland Water Boarding commission.
OK - who is first? Sam, Randy?
Posted by Tim | July 17, 2012 9:31 AM
Sam and Randy are nothing more than grifters. Con men who rode into town and stole us blind.
Sad news is that the next mayor will be just as bad if not worse.
Portland is headed to bankruptcy but the average idiot who lives in the city is too busy riding his bike to work at the coffee stand to understand.
Posted by andy | July 17, 2012 9:48 AM
"Carollo's nowhere to be found."
Probably because Carollo pays a lot lower rate than anyone else. Oh well, only six months until Randy takes his two full public pensions and leaves us alone.
"In any event, while Portland keeps borrowing like a college kid with a new credit card"
As long as the municipal bond market holds up, these guys can keep wrapping (ie issuing more new debt to pay off the old debts) and keep stacking the house of cards higher. If a few more of these cities crash or interest rates tick higher, then we'll see.
But there's the dark side of forced low interest rates and lots of money sloshing around in the system (just not in the average guys pockets.)
"All the commissioners should be subject to having these outrageous debt service plans reviewed by an independent board."
It doesn't matter. Ever hear of the PURB (Portland Utility Review Board)? They've been saying for 5 years that Randy is wasting money and there is NO justification for rate increases.
That really had a chilling effect on his behavior.
Posted by Steve | July 17, 2012 9:53 AM
Is Carollo for real, or some money laundering front set up in an obscure PWB storage building?
Posted by Mr. Grumpy | July 17, 2012 10:56 AM
Page 56 on pdf, or 46 in document:
Retail Volume Rate (per ccf) (1) 2010-11: $2.733; 2006-07: $1.77
This yields a 54.4% increase in rates in the past 4 years, or 11.5% annual growth in rates. Shocking. I’m lucky to be a married professional in this city, how do the poor and marginalized afford the water bills? But more import, how will they afford them in the future with price increases like this?
Apparently it gets worse with the actual monthly water bills:
Residential (5 ccf) (3) 2010-11: $21.93; 2006-07: $12.17
This yields an 80.2% 4 year increase in the monthly (haha) bill, or a 15.86% annual price increase!
On page 57 or labeled 47, we find a comparison to other cities rates for 10ccf, where the city says they charge $40.19/mo, Charlotte comes in at $23.23 (PDX pays 73% MORE PER MONTH) , Denver at $25.33 (PDX pays 58% MORE PER MONTH).
The problem with us paying more is that water literally falls out of the sky here, into a natural reservoir AND filer that has positive pressure potential (it’s higher than the city so much reduced need to pay to pump it to deliver or from wells, most of the water delivery is gravity fed), and then a giant river to send the waste out to the ocean.
Why are we paying so much more when we have a natural advantage?? Do coconuts and pineapples cost more in Hawaii? No. Do Lobsters cost more in Maine? No. Do eggs cost more in the country? No!
The water bureau is obviously the choice for the city slush fund as they don’t control the other utilities, and it’s really the only utility humans need to survive, and is a small part of residents bills, but not for long.
I think water should be free here to residents, or at least a free allotment, not a consistently rapidly increasing tax burden for the benefit of SamRands benefactors.
Professor, what are your beliefs of the prospects of Bankruptcy for the City?
Posted by Pistolero | July 17, 2012 10:56 AM
Advocates for the poor have been asking for years for preferential rates for low income in order to help keep poor people in home ownership. Perpetual answer: "Can't do it. We have to charge everybody the same". Proposal: Give poor people the Carollo rate.
Posted by dyspeptic | July 17, 2012 11:22 AM
Debt Swamping is the name of the game and unfortunately, we have a council all too eager to participate.
Who is behind this wanting the path opened to privatization and thus losing control of our water and water rights? Those who want to make money on the backs of the people of this city, water being a basic human need. Shame on every elected official who is part of this and has been laying down on this critical matter. Money is the trump over all here including the health of our community that apparently is of little consideration. So are the political careers that seems to be more important to them.
So now we have Charlie and Jefferson who have been quiet about this elephant in our community to save our water system and water rights?
We also have Amanda Fritz who at the budget hearing when testimony was hard hitting from those about our water and the debt, promised a work session to discuss this further. From what I hear now, people can attend, but cannot engage or speak. Insane! Is the staff from Fritz's office reading this? Will the people concerning their water be able to participate in the work session or only allowed to witness the "continuing folly?"
Fritz should have asked for a Waiver long ago and if necessary gone to DC to work with EPA for that Waiver, certainly should have asked our Senators to align with NY Senator Schumer who has told EPA their NY community cannot afford the financial burden of the LT2 requirements. When we spoke with Senator Merkley's aide, we were told he couldn't do anything if the city didn't ask?
Posted by clinamen | July 17, 2012 12:37 PM
"Can't do it. We have to charge everybody the same".
They promise Wall Street, right in the bond documents, that they'll never give anyone a discount:
Not enter into any new agreement to provide Water System products or services at a discount from published rate schedules or to provide free Water System products or services (except in case of emergencies).
Sometimes I wonder if promises like that are really enforceable. There are some limits on the ability of present-day city councils to bind future ones.
Posted by Jack Bog | July 17, 2012 1:07 PM
But there is nothing stopping them from publishing a new rate schedule with a reduced rate for low income people. So they can still do it, if they wanted to.
Posted by Michael | July 17, 2012 2:01 PM
But why would they want to turn down the shakedown machine for something as vital to all living things as water? It's not like it's being run by philanthropists.
Posted by Mr. Grumpy | July 17, 2012 2:34 PM
You know, I just thought of something:
Not enter into any new agreement to provide Water System products or services at a discount from published rate schedules or to provide free Water System products or services (except in case of emergencies).
Did that covenant forbid the existing Carollo deal???
Posted by Jack Bog | July 17, 2012 3:07 PM
"Not enter into any new agreement to provide Water System products"
I can see Randy saying Carollo's always had that discount so it is not "new".
Besides once the bonds get sold whats the chance some Wall Street type is going to call default on CoP? They'd lose the future fees when CoP goes to the bond market six months later.
Posted by Steve | July 17, 2012 3:20 PM
I can see Randy saying Carollo's always had that discount so it is not "new".
But is that bond covenant new? The city's been borrowing against the water system for quite a while -- that promise may have been on the books before Carollo got its sweetheart deal out at the Columbia well fields.
Posted by Jack Bog | July 17, 2012 3:24 PM
That covenant goes back at least as far as 2000; the Carollo deal went down in 2002 and 2003. Could be a breach.
Posted by Jack Bog | July 17, 2012 4:11 PM
They weren't selling groundwater before the deal in 2002, so it seems like it deserves a 'mention' that they now are (especially when the volumes are larger than a lot of wholesale agreements). There is very little "disclosure" about the money they're making on it and a trail that shows it going into the revenue pot for the system. There is only a statement once a year that the price it $0.46/ccf but they don't mention volumes being sold or the annual amount coming in from it, or any names of who's buying it. It only came out from the CC?? "100 Largest Users" which said they are paying about $287,000 while the 'Requested Budget' every year only puts in $44,000-$51,000. So, where's the rest of the money and how much has there been since 2003?
Where's the PUBLIC in public/private agreement....seems mostly PRIVATE!
Posted by ThereOttaBeALaw | July 17, 2012 4:50 PM
"an 80.2% 4 year increase in the monthly (haha) bill, or a 15.86% annual price increase"
And then the Sam-Rand Twins and Jelly Fish make a big deal about affordable housing. What type of hypocritical jungle juice are they drinking? Water should be a basic right.
Posted by TR | July 17, 2012 5:58 PM
I guess there is money to be made on basic rights.
In addition to the watch over the Sam-Rand twins, we need to see what Fish is up to in the housing arena. What does the term workforce housing mean?
Now I see where some single family tax abatement is coming, don't know much about it but the whole matter of housing seems fishy, especially since from what I read, the term public subsidized housing is not the term used, but the term affordable housing is.
Who is making money on this type of housing?
Posted by clinamen | July 17, 2012 6:07 PM
"But is that bond covenant new?"
Sure it is - Every time they do a "wrap" and replace the old bonds with a higher dollar amount of new bonds. The clock starts when they sell the new bonds, so this would probably be fruitless.
I'd give every donation I could to John DiLorenzo and have him sue the pants off PWB and get back one of those pensions we're giving Randy as a going-away gift.
Posted by Steve | July 17, 2012 7:27 PM
"But is that bond covenant new?"
Sure it is - Every time they do a "wrap" and replace the old bonds with a higher dollar amount of new bonds.
The promises that were made to the parties who bought the bonds in 2000 remain binding as long as those bonds remain outstanding. These are not refinancing, a.k.a. "refunding," bonds. The principal amounts are getting bigger with every cash advance.
Posted by Jack Bog | July 17, 2012 9:11 PM
Correction: All of the water bonds that pre-date the Carollo deal have been paid off.
Posted by Jack Bog | July 18, 2012 1:05 AM
Willamette River Pipe Crossing: The project provides for the replacement of major pipelines to strengthen the
transmission link between Powell Butte and the service areas west of the Willamette River, including downtown
and the storage reservoirs at Washington Park
Posted by Mike | July 18, 2012 6:27 AM