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Tuesday, March 12, 2013

Audit Says Portland Is Worth Less Than It Used to Be

Posted by Nathan Gilles on Tue, Mar 12, 2013 at 1:59 PM

The city’s most recent financial audit is in. And auditors, once again, are warning the city is losing value. As in, a lot of the stuff it owns—like an old car or house gone to seed—is worth less and less every year.

During the Portland City Council meeting last Wednesday, March 6, Jim Lanzarotta of Moss-Adams LLP, the private accounting firm hired to run the recent audit, implored city commissioners to start asking if there’s “a way to look at the long term impacts of the current decisions you are making to make sure that we are not putting off too much of the cost we are incurring today to future generations.”

Lanzarotta declined to comment for this post. But, according to his testimony and the Moss-Adams audit, the city is slowly losing value: its parks, its cars, its roads, its retirement accounts. And, as many have warned, this has been the case for years.

This year the net value of the city's assets fell about $61 million. But even that's chump change compared to what the city has lost over the past decade: around $1 billion. If you haven’t noticed the stark decline, don't worry. It's hard to notice. That's because it's more about things the city isn't doing than the things it is.

Put simply, the city’s things are wearing out faster than they're being replaced: things like parks, roads, and equipment such as trucks and other vehicles. It probably won't surprise you that the biggest drag included in this category is the city’s miles and miles of roads that need to be repaved. And putting off the paving, auditors say, only adds more expenses down the road (pun intended). That can-kicking involves most services paid for with taxes and provided to the public nearly for free.

It's hard to see that, though, just by looking at the city's current net value, which sits at around $2.4 billion. This number—and this is laughable, because this will never happen—is roughly the cash the city of Portland could earn if it were to sell off all its assets and subtract all its liabilities. Ten years ago, net worth was about $2.7 billion. The billion-dollar drop is being largely obscured by the city’s other improvements, specifically in the city's utilities.

These utilities (in accounting jargon they are called “business-type activities”) refer to things like sewer and water pipes—and they include the Big Pipe. Yes, they cost the city money, but that cost is partially offset by increases in utility rates. So it’s a little like buying a new house: The down payment might set you back, and so will the monthly payments, but you can now count that house as an asset. It’s the same with the city. Investing in utilities costs the city money, but it also makes the city richer. And doesn't come at the expense of other programs that compete for general tax dollars.

And there are other drags, big ones:

• The Fire and Police Disability and Retirement fund. This year, the city’s obligations to the fund outnumbered its contributions by 2 to 1.

• And Debt. While the city is handling its debt well—we’re not putting our grocery bills on our credit card, if you will, and we've stayed in the good graces of the bond market—things like debt from urban renewal projects are still pulling the city’s numbers to the red.

So how important is this whole net worth thing? Pretty important, says Drummond Kahn, Portland’s director of audit services.

“Net assets are one measure of a government's fiscal health," Kahn told the Mercury. Kahn also notes he and others have been bringing up this same concern for years.

But hey, in the short term at least—current budget woes aside—the city's finances are looking solid enough.

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