Editorial Opinion by Mark Kirchmeier
If you have ever missed a credit card payment, you know what happens next. The credit card company hikes your interest rate and you end up paying hundreds of dollars more every year, if and until, your credit rating improves.
Something similar could happen to the City of Portland. The Moody’s and Standard & Poor’s rating services that set the city’s credit worthiness recommend that cities keep at least 15% of their budget in reserves. The rating agencies warn that dropping below that 15% benchmark can threaten an excellent credit rating
Portland is already at that point. A decline in city property tax revenues, particularly after the summer 2020 riots-protests, has forced the city to drop reserves from 20% to 15% in order to fund services. The same property tax revenue shortfall has also created the city’s current $169-million budget deficit.
Mayor Keith Wilson, in response, has reluctantly proposed temporarily using more reserves to minimize public safety, parks and other service cuts. That would reduce reserves to just 12%. The mayor, fortunately, has a concrete strategy to replenish those funds back to 15%, as Chief Financial Officer Jonas Biery recently explained to the City Council. Biery also told councilors that cutting reserves further could downgrade the city’s credit rating.
Wrong way to restore St. Johns’s Engine 22
A council majority disregarded that fiduciary warning and has exacerbated the crisis in their decision to restore Engine 22 in St. Johns. No one disputes the value of restoring Engine 22 at the Portland Fire & Emergency Services Station at 7205 N Alta Ave. It covers major fires all over North, NE Portland and Linnton. The council, however, has had several opportunities to restore Engine 22 without endangering reserve funds, and rejected them all. Instead, the self-described Peacock block supported Councilor Sameer Kanal’s amendment to take $2.5 million from the city Business License Tax (BLT) reserves to fund the engine and crew.
Councilor Mitch Green defended the decision, arguing that the $2.5 million in BLT reserves will be easily replenished by the $40 million to $50 million that the city will get from Jody Allen’s sale of the Blazers. Maybe. But the unpredictability of the economy in recent years makes the city’s BLT revenue forecasts unreliable, and hope is no substitute for the math.
Kanal seems amenable to some compromise on this, saying there may be opportunities in the future to put funds back into business tax reserves.
It gets worse…and the consequences
Meanwhile, the council majority has also targeted contingency funds intended only for emergencies, including pulling $3.2 million from the Clean Energy Community Benefits Fund and $532,000 from the cannabis tax contingency reserves. They also swiped $450,000 from the city’s public golf course reserves to self-servingly stuff more money in the city’s public campaign finance program that got them in their jobs with $133,000 annual salaries.
The consequences of grabbing fiduciary reserves can be severe. Former City Commissioner Amanda Fritz puts it this way:
“If the city’s credit rating worsens due to inadequate reserves, the cost of bonding for major capital projects and utilities would likely go up, and that would have to be covered by increased rates on customer bills. Paying for ongoing costs with one-time infusions from reserves also merely kicks the program funding problem down the road. It’s unfair to staff who will continue to worry whether they will have jobs the following year.”
Moody’s dropping Portland’s current AAA rating by just one notch would force taxpayers to pay an extra $3.4 million in interest rates over the life span of a $100 million city bond. A downgrade would also decrease confidence among companies seeking to invest in Portland. Our city is already struggling to attract new dollars to generate new jobs. The Urban Land Institute’s recent survey of housing investors ranked Portland 80 out of 81 cities, behind only Hartford, Connecticut, as the worst place to invest. A credit rating downgrade could make us dead last.
Mark Kirchmeier is a co-publisher of the North Peninsula Review and has been a North Portland resident for 30 years.