The next Mayor of Portland will inherit a city with an international reputation for green living and unique style and culture. He’ll also be handling a city balance sheet with some long-term challenges.
Even the strongest American cities are struggling to find their feet coming out of several tumultuous years of recession. April Baer reports on the financial realities the candidates will have to face, when one of them wins election in November.
City Auditor Lavonne Griffin-Valade says she’s not ringing fire alarms about the city’s bank balance. “We are still in a somewhat stable position,” she says.
Portland is still able to borrow the money it needs to meet budget every year according to Griffin-Valade.
She thinks the city has done a relatively good job of maintaining basic services during several years of steep budget cuts. But she released a two-page report over the summer outlining some trends in income and spending: Portland’s assets and liabilities.
Griffin-Valade says the city’s debt load is tipping into unacceptable territory.
“We have less and less money to fund our basic services. We need to do something about that going forward.”
Last year the city spent $360 million more than it raised in revenue. Some officials at city hall call that imbalance no more harmful than a household mortgage debt, but the auditor says it’s worth noting.
For every property tax dollar the city collects, only $0.46 goes to the general fund. The rest is almost entirely tied up in pension liabilities and debt service for urban renewal projects.
Portland isn’t the only city in America facing big pension liabilities and a cash crunch. But the candidates agree change is needed.
Jefferson Smith, is a state representative who also ran the non-profit Bus Project for ten-years.
“I think we’re facing a historic economic crisis, and a significant budget challenge,” Smith says.
Charlie Hales is a former city commissioner who spent ten years working for engineering giant HDR.
“Having a lot of debt might be defensible from a technical standpoint. but I’d like us to be going in to the future with a margin of safety, not standard accounting practices,” Hales says.
Both candidates say they intend to exercise strict discipline over city finances.
Jefferson Smith says there are four ways to address budget challenges: “Stop doing some things, do some things more cheaply, find more revenue, and grow the economy.”
Smith says he looks for the hidden costs of large projects. He’s skeptical that the Columbia River Crossing, a convention center, and streetcars are the right choices for Portland right now.
“We need to look for ways to do things with greater cost consciousness, prioritize front-line services and trim middle management during budget cuts. It’s not pleasant.”
But Smith says it has to be done. Overall, Smith says he’ll try to look at both sides, money going out, and money coming in.
Charlie Hales has been talking about the city’s debt load as it pertains to urban renewal all summer. Urban renewal projects divert tax dollars for community improvements that might attract business to blighted areas.
Back in July, Hales put out a position paper on urban renewal — one of the key areas the auditor’s report identified as funneling cash away from the general fund. He says fiscal solutions will involve making big, slow turns in policy on things like urban renewal areas.
“I think some of these districts are more viable than others. The council has to have the fiscal discipline to declare victory and shut those districts down. I think any reasonable person can look at the Pearl District today and say, ‘I don’t see any blight. Looks like a success, let’s call it good’.”
He takes a similar view of the pension debt that claims a quarter of city property taxes.
“The thing about some of these issues is you have to gave good policy and keep it in place for a long time. It will take a generation to transition out of the old police and fire pension system.”
Smith says he supports further reforms to the pension fund, too.
There’s a bit more to city finances than what currently appears on the books. Within the next year, the Government Accounting Standards Board, or GASB, will require public entities to be more transparent about pension liabilities. Experienced analysts know where to find that information, but any other person picking up a financial report might not see it.
Dean Mead is a research manager with the Accounting Board.
“When governments implement these new standards, it’s going to look like they’ve got a whole lot less healthy. That’s not true. Their economic position won’t have changed at all. But it’ll be a lot more apparent where they stand, and what types of obligations they face in the future.”
In Portland’s case, that means the city’s Fire and Police Disabilities and Retirement system will now be listed as a liability in the city’s annual financial report. The system’s being phased out, but the city is still paying a lot for the remaining retirees covered by it. An audit report last year reckoned that if full FPDR liabilities were figured into the city’s budget, Portland would appear $615 million in the red.
The nature of Portland’s fiscal challenges have in part to do with all the services and infrastructure City Hall is responsible for.
Ken Rust worked in Portland’s office of Management and Finance for many years. Overall, he gives Portland a good grade for fiscal health, and digging in on upgrades like the Big Pipe project. But he remembers bureau managers going to council asking for money to maintain the city’s assets - really basic stuff like water pipes, roads, parks, IT and software systems.
“The city was not spending enough to take care of the assets it currently owns. On so many of these things, when you fall behind the cost of catching up is far greater than simply trying to maintain something.”
The effort, he says, went nowhere. Rust, who’s now a lobbyist, says there just wasn’t much interest in paying for maintenance.
“We tried to implement a performance management system, seven or eight years ago. Council had zero interest in that. We couldn’t even get them to use the word ‘priorities’.”
Charlie Hales says he’s well aware from his city hall experience that fiscal change is not painless.
“This is a question of where are we steering, and can we hold the course for enough time that it starts to really produce good results. We come to this from strength. The city is not going broke.”
For his part, Jefferson Smith says he’s demonstrated his capacity to say ‘no’ when it’s in the city’s interest.
“You’re talking to the guy who was one of the first elected officials to say no to the Columbia River Crossing, to say ‘no’ to coal trains coming through the city. If it’s in the best interest of Portlanders, I am prepared to say, ‘no’.”
Professionals like Ken Rust who’ve worked at City Hall question whether the city’s overall fiscal condition is poor enough to be concerned about. Taxes are being collected, the city is paying its bills on time. Council members often cite the city’s triple-A bond rating as evidence of strength.
But as valuable as that rating is, it represents only a fraction of Portland’s overall bond debt. At the end of last fiscal year, only 12% of the city’s bonds were rated triple-A, according to the annual debt report.
Portland auditor’s Report to the Community - see the PDF labelled “A Report to Our Community”
Charlie Hales’ position paper on Urban Renewal
Some fiscal positions from Jefferson Smith