Does Scottsdale Have Its Own Impending Financial Crisis? 2019 Bond Vote Now Causing Problems

To say that it has been a tumultuous past few weeks in the financial markets in America would be an understatement. The dramatic collapse of Silicon Valley Bank, the main banking institution for much of the tech and start-up industry, was directly followed by the regulatory seizure of Signature Bank, which represented the 2nd and 3rd largest bank failures in American history. And now, Scottsdale may have its own small-scale financial crisis on its hands, partially because of the same foundational reason that eventually destroyed those aforementioned banks.

In 2019 Scottsdale voters voted for an ambitious public funding program designed to fund 60 projects throughout the city. However in a bombshell new report from the city, the program is now 36% (or $115 million) over budget, meaning that many of those projects will not come to fruition without major changes.

The majority of the cost overruns are a result of the rampant and unexpected inflation that has gripped the entire country, an unfortunate circumstance that would have been difficult to plan for considering the low inflation environment up to 2019 (rising interest rates in order to combat inflation were a big reason for the eventual run on Silicon Valley Bank and Signature Bank). However, significant mistakes in estimates by staffers also contributed to major cost overruns, mistakes that could have been avoided and are disappointing.

So what does it mean? Simply put, that the promise of Bond 2019 will not come to fruition as it was originally sold. Whether or not a significant percentage of the projects will just be nixed, downgraded, reworked or all of the above has yet to be determined. Since revenue to the city has not been as robust as years past, the city’s coffers are not as strong as before and they will not be able to simply fill the hole with excess liquidity. 

While it is easy to attempt to point fingers, I would caution against that, at least insofar as the inflation problem is concerned. While it is difficult to bring ourselves back to the ancient days of 2019, a virus causing a global pandemic had not yet transferred to a human via a wet market or leaked from a lab (depending on which government department you talk to), so it would have been impossible to predict either the serious supply chain issues or the flooding of money into the markets, which when combined with persistent low interest rates caused the inflation that led to this problem. That issue deserves a pass.

That said, the poor estimates made by staffers do deserve a second look. Mistakes are always made, but ones that lead to misestimates of millions of dollars of taxpayer money demand at least some consequences. We’re not here to name and shame, but taxpayers deserve better.

In summary, Scottsdale is not collapsing like Silicon Valley Bank or Signature Bank. We are not declaring bankruptcy like Orange County. But one of the ramifications of our ongoing inflation issue (along with a few dashes of incompetence) will be felt. But still, our problems are by definition “first world problems”, and we should thank our lucky stars that our problems are so mild.