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I’d like to spend a little time talking about the major components of the city’s debt and why we simply must get this spiraling problem under control.

When I talk about “debt,” I am not referring to outstanding bonds or other such instruments. I’m talking about obligations that aren’t on paper, but are just as real. As an aside, one of the more entertaining moments during the Pension Reform Committee’s hearings was when a city staff member called such debt “soft debt.” For a moment, I was truly fearful that some of my fellow committee members would simply explode, particularly Dick Vortmann … but I digress.

The bulk of the problem lies in three areas: pension, post-retirement health care benefits and deferred maintenance.

Starting on the most positive note, I believe the pension mess has stabilized. In this upcoming budget, the mayor is proposing to make sufficient payments to stop the unfunded liability from growing. Many of you readers may be surprised that I am not insisting that an even larger payment be made, but the fact is that our resources are better spent getting the other two major areas stabilized first. This debt carries an 8 percent interest rate.

Post-retirement health care benefits are not in as good a shape. The liability is $700 million and it, too, carries an 8 percent interest rate. This means that to just pay the interest on the debt, a $56 million payment is required. Then there is the ongoing “normal” annual cost of about $38 million. So to pay the ongoing costs plus just the interest on the debt requires $38 + $56 = $94 million per year. We’ve been paying around $25 million. This year the budget proposes $50 million (a huge improvement), but that still leaves us $94 – $50 = $44 million short. Next year’s liability will, therefore, be $744 million and the debt payment will be $744 X 8 percent = $59 million. We cannot sustain this. We simply must get our payment up to at least the $94 million level

By far the most frightening of our structural debt is the deferred maintenance backlog. The Mayor’s Office is working to determine the exact amount, but it appears to be in the $900 million to $1 billion range.

The worst part about this deficit is that I believe it is growing at a much faster rate than 8 percent. With deferred maintenance, two things happen. First, the cost of materials increases. Second, an unmaintained asset deteriorates at an exponential rate. A leaking roof requires a patch. If it’s not patched, then there’s a hole. The next time it rains, a part of the roof caves in, causing water damage to the interior of the house … and maybe damage to the occupant. For the sake of discussion, let’s say that the deferred maintenance backlog is growing at 12 percent per year. And $900 million X 12 percent is $108 million. That’s just the growth in the backlog and does not take into consideration the maintenance that would normally have been scheduled in any given year. I have no idea what that number is, but let’s say it’s $30 million. So $100 + $30 = $130 million just to keep the backlog from growing. In this current budget, the mayor has proposed $38 million. This means that next year’s backlog will have grown to $992 million.

Bertha’s in big, big trouble.


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