Portland's debt a 'scary monster in the closet'

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PORTLAND — About 18 hours after the four members of the City Council Finance Committee opposed the new $225 million municipal budget, they warned city debt is becoming unsustainable.

“We need to put ourselves on a bit of a diet with the capital improvement plan and make some tough decisions,” committee Chairman Councilor Nick Mavodones Jr. said June 25.

Facing projected annual needs of $20 million or more and a debt limit of $12 million to keep the tax rate constant, the Finance Committee will host a workshop with city councilors to establish the city’s debt realities.

The estimate is the city needs $19 million annually for replacement and maintenance of 82 municipal buildings, more than 680 vehicles, nearly 50 million square feet of streets and sidewalks, and debt retirement, according to the Finance Committee webpage.

What is not included is an estimated $50 million to renovate and expand city elementary schools, maintain the Maine State Pier, or make up for an existing $8 million backlog on deferred maintenance for city equipment and properties.

“The problem is some pieces are not in there, and it assumes you built something and maintained it all along,” Acting Deputy City Manager Anita Lachance said.

The backlog was exacerbated this year when councilors approved a $14 million capital improvements bond plan with $7 million allocated to replace the city’s emergency communications system.

“We had a pretty sizable purchase where we deferred maintenance,” Ian Houseal, the assistant to the city manager, said.

The $19 million estimate also does not include the $3.5 million councilors authorized Economic Development Director Greg Mitchell to spend to begin to convert a former bottling warehouse at 250 Canco Road that, combined with property at 212 Canco Road, will become the city Department of Public Services.

Houseal said the purchase will add $350,000 in debt service next year.

Excluding school construction bonds that have not been issued, the current municipal debt service for principal and interest decreases from $14 million currently to $9 million in fiscal year 2020.

Proposed bond spending in the next five years is $61.4 million, according to the plan, although how and what is spent remains undetermined. Houseal and Finance Director Brendan O’Connell have used spreadsheets to plug in individual projects the council could consider, but paying down an even larger debt is what Councilor Ed Suslovic called “the scary monster in the closet that is banging on the door.”

Through June 1, 2026, the city will continue payments on what former city Finance Director Ellen Sanborn called a 2001 “credit swap” that allowed the city to pay almost $112 million in unfunded obligations to the Maine State Retirement System.

Now directing finances for the city schools, Sanborn was assistant finance director when the credit swap was made, and said the unfunded liability was increasing by 6 percent to 8 percent annually.

Unlike municipal bonds, the credit swap created increasing payments over its 25-year life, and for its remainder has an 8.9 percent interest rate with financial penalties that make refinancing unrealistic.

The credit swap still saves the city about $850,000 annually, according to the payment schedule. Sanborn said the former, and more expensive, liability would still have been a fixed-cost part of the city operating budget.

No matter how it is viewed and what is saved over its term, the credit swap debt service will be $12.8 million this year and increase in the next decade. The final payment is $22.3 million.

The outlook led Suslovic and Councilor Jon Hinck to question the likelihood of completing several projects.  It could cost $27 million to convert Franklin Street to a more pedestrian- and bicyclist-friendly thoroughfare with commercial development, with $5 million estimated for design work; another $3.2 million to return two-way traffic to State and High streets, and the Congress Square redesign work is estimated at $3.4 million.

“When I look at all these projects and I look at all these realities, I don’t see us getting to them,” Hinck said.

Suslovic also questioned whether financial demands might require the city to sell off parking garages or even the Barron Center senior assisted living center on Brighton Avenue.

“I love the Barron Center, I think it is one of the best thing the city does,” Suslovic said, but he added it may become difficult to fully fund its upkeep and services.

Committee members have yet to set priorities, aside from presenting a clear picture of the challenges.

“This is work we have to roll up our sleeves and do this summer,” Mavodones said. “It is a lot of money, and if we aren’t careful, it will affect the operating budget.”

David Harry can be reached at 781-3661 ext. 110 or dharry@theforecaster.net. Follow him on Twitter: @DavidHarry8.

Portland City Hall reporter for The Forecaster. Baltimore native, lived in Maine since 1989. A journalist since 2005, covering much of Cumberland and York counties. I joined The Forecaster in 2012.