City officials dispute failure of accounting watchdog’s financial memo
A national watchdog group recently gave the city of Portland a failing grade for financial health, ranking the city 71st out of America’s 75 largest cities.
“Portland’s financial problems stem from unfunded pension liabilities that have accumulated over the years,” the Truth in Accounting group’s report said.
The group produces an annual report and consistently gives Portland low marks.
City budget director Jessica Kinard has reviewed the latest version and says the report draws its conclusion about Portland from a fundamental disconnect.
“The report has a critical flaw in its assessment of Portland: it misunderstands and does not accurately account for an important and sole funding source for the city’s liabilities, which is an own-source levy to support retirement costs. sworn members of the police and fire department,” says Kinard. “This is a common misperception by external assessors who are unfamiliar with the structure of the city.”
Most governments set aside money to pay for their employees’ future retirement obligations. This is the structure that state and local governments in Oregon use, for example, by making annual payments to the Oregon Public Employees Retirement System. The trustees of the PERS system collect the annual payments and invest this money. They use the proceeds to pay retirement benefits.
By contrast, Portland’s sworn police and firefighters have for decades had their own pension system, which is funded differently. Rather than accumulating reserves over time and investing them, the fund, known as the Fire & Police Disability & Retirement Fund, relies on its own dedicated property tax. The tax collected for this specific purpose comes from the taxpayers and is paid in the same year to the beneficiaries.
“The city’s pension plan funding is unique for cities of its size,” Kinard says. “Accounting standards do not consider the value of future fire and police pension tax property taxes when analyzing funding percentages, therefore unfunded actuarial liabilities are negatively skewed for Portland on paper, leading to misinterpretation of the data by Truth in Accounting.”
In other words, the report that gave Portland an “F” takes into account the debts the FPDR owes retirees but does not offset those debts with the future property taxes that will pay them.
Kinard says city finance officials routinely explain the unusual repo structure to bond rating agencies whose job it is to assess the creditworthiness of borrowers. The result: Portland has a AAA credit rating, the highest rating given by the agencies.
The City of Portland continues to be one of the few cities of its size to maintain a ‘AAA’ credit rating from Moody’s Investor Service, one of the nation’s leading financial analyst firms,” Kinard said.