Water Under the Bridge

The Pittsburgh Water and Sewer Authority (PWSA) is staring at some sunk costs. According to an article today the PWSA spent $2.7 million on a financial management system that is essentially a closed loop and cannot communicate with the integrated City-County financial management system that took quite a long time to implement. A former City employee was quoted as saying that the PWSA should have jumped in on the integrated platform and one board member is not happy with the system they have.

But is that characterization of getting in on the City-County platform accurate? A March 2011 article seems to indicate that it was the City that was proposing to go with the PWSA’s platform as an alternative to joining the County’s system (the Act 47 rejected this option). That means the City-County integration was not even done at that point-that was not formally announced until January 2012, possibly two years after PWSA purchased its financial management system.

And how about the board member’s position-that "PWSA upper management recommended the system, and it made sense to approve it"? The PSWA board includes four Mayoral appointees: surely they had to have known in 2010 that there was a push to get a large integrated system. It was mentioned in the amended Act 47 plan that was written in 2009, a year before the PWSA purchase was made. Add on top of that the fact that the Mayor was bullish on cooperation and completed a purchase of the Borough of Millvale’s water system under the admirable goal of efficiency. Didn’t those appointees get direction from somewhere other than PWSA management? The other three members of the board are heavily involved in City finances-the Controller, the Finance Director, and the Treasurer. Did they offer opinions on where to steer the Authority’s financial platform?

A Collegial Relationship

A few years ago, 2009 to be exact, the County’s tangled web of relations between itself and UPMC, the County’s role as the body that assesses property value and certifies that parcels exempt from real estate taxation really should be, the County’s role as promoter of economic development and leaning heavily on "eds and meds", and the County’s role as viewing itself as needing to intervene in matters such as UPMC’s decision to shutter the hospital in Braddock all intersected at one Council meeting, one that we wrote about then. That’s because on the same night that County Council decided it wanted to explore what UPMC owned and whether everything was deserving to be exempt (presumably as a tactic to scare UPMC into changing its mind) it had to decide whether the County-acting through its related Hospital Development Authority-would issue $1 billion in bonds on behalf of UPMC.

The issue of the Authority acting as a debt issuing vehicle rose again in 2011 when the UPMC-Highmark battle was at its apex. Again, we wrote about that debate and the $330 million borrowing request that, in case the County wanted to exert influence by not issuing the debt, another state level authority stood ready. The County did not issue the bonds.

So why bring these instances up? Because at the end of 2012 County Council held a hearing on UPMC which it promised would be the first of many on finding out if property owners classified as charitable and exempt really deserved all their exemptions. As an article today pointed out, the classification system the County has on exempt property is a mess, but tomorrow night the Council will take up business deciding whether its Higher Education Building Authority should issue over $80 million in debt for two private universities in the City of Pittsburgh and, after that, whether the Authority needs a new lease on "municipal" life, which amounts to fifty years additional. The County does not pledge its revenues or the state’s by issuing the bonds but it has the opportunity to make plenty in fees and payments. That’s the decision point it has to deal with when deciding if it wants its instrumentalities to help the institutions it is trying to get to act a certain way.

The Authority That Wouldn’t Die!!!

The Mayor just appointed City Council’s most junior member to the board of the Stadium Authority, an Authority that was created in 1965 to "provide increased commerce and prosperity, and to promote cultural, physical, civic, social, and moral welfare to the general public". No doubt its role as the owner of Three Rivers Stadium did most of the above-the jury on how "moral welfare" was promoted is still out.

Consider that the new appointee had just become eligible to drive in the Commonwealth when the stadium was demolished, eleven years ago this month. Since then, the Stadium Authority no longer owns any stadiums, that role taken over by the Sports and Exhibition Authority (the SEA performs administrative duties and gets reimbursed by the Stadium Authority) so the Stadium Authority is now relegated to playing land developer and constructed a parking garage in the land between the new stadiums.

The Authority’s financial statements make it clear that "the garage has not and will not generate revenues fully sufficient to cover expenses and debt service". It took on a $20 million loan to construct the garage, and the financial statement states that the last payment will be December 1, 2028, somewhere around Super Bowl LXII. Long-term leases involving the Authority and parking spaces last until 2050, just around the time the current Steelers’ quarterback can begin collecting Social Security.

A 2005 report to the ICA said that "operationally, the Stadium Authority could be operated by another City authority such as the URA". That same report showed that as of 2004 the Authority had total assets of $9.4 million and liabilities of $9.4 million. In 2011 total assets were $35 million and total liabilities of $44 million.

Sure makes that admonition on the Stadium Authority’s website in 2001 that its "existence and function will conclude with the planned demolition of Three Rivers Stadium" look funny after all these years.

Obscure Authority in Thick of Debate, Again

The ongoing conflict between UPMC and Highmark has set up shop, briefly, at the County courthouse. Not because the Council or the Executive is bringing those parties to the table, but because there is a request to use the County’s Hospital Development Authority as a conduit through which one of the parties would like to borrow more than $330 million.

The County has had a hospital development authority since 1971. What amounts to a mission statement comes from the County’s page on boards, authorities, and commissions: "The ACHDA was created and is authorized by law to acquire, hold, construct, finance, improve, maintain, operate, own and lease, as lessee or lessor, health centers (including but not limited to, personal care facilities and nursing homes), hospitals and facilities devoted to hospital purposes. Financing is provided by the Authority through the issuance of tax-exempt bonds. The rate and term of financing are negotiated. The interest income on the bonds may be exempt from federal and Commonwealth income taxes which results in a reduced rate to the borrower (emphasis added)."

Could the County and its authority deny the borrowing as a way to force a negotiation between the providers? It is doubtful. For one, a committee approved moving the issue along and the chair of that committee was quoted as saying the County has "no effective financial leverage". And two, a denial would simply mean a borrower would go to another issuing authority to get what they want. What was surprising on this second point is that it was supposedly something committee members had not known about as implied in a newspaper article (the language said "members learned").

If that means members were surprised or caught off guard that’s interesting because the County just went through a similar episode in 2009-10 when one of the providers came asking for a refinancing as it was planning to close a facility in the Mon Valley. Membership on the committee has not changed much since then. The authority, Council, and the state Higher Educational Facilities Authority all voted to approve the $1 billion bond issue. After the state authority vote an article pointed out that "The hospital system decided to seek state approval as a contingency plan in case its efforts to issue bonds through the county authority hit a snag."

Is Council Serious About Shutting Down the Parking Authority?

Members of Pittsburgh City Council have expressed frustration with the operations of the Public Parking Authority.  Some have mentioned the possibility of dissolving the Authority. Perhaps that’s because Council members have spent the better part of the past two and a half years debating, deliberating, and discussing how to solve the City’s massive pension problems with the  Parking Authority and its assets a major element in those discussions.


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Could the Water Authority Evaporate?

Tucked into the discussion on the City of Pittsburgh’s finances was a mention that part of the overall wish list could involve privatization of the Water and Sewer Authority, the public agency that is responsible "for the operation and improvement of the City’s water distribution and wastewater collection systems".

This responsibility was housed within the City water department for many years; the Authority was created in 1984 and in 1995 entered into a Cooperation Agreement and a Capital Lease Agreement that transferred Water Department employees to the Authority and the Authority agreed to lease the water system for a period of thirty years. Under the terms of the agreements the Authority assumed workers’ comp liabilities, provides the City with up to 600 million gallons of water free of charge, subsidizes the water rates of South Hills residents who are served by a private operator, pays the City $101 million annually under the lease, and, in the year 2025 can purchase the system for the nominal fee of $1.

Water and sewage systems are popular options for privatization-after all, providing drinking water is not a core public service and much of it is supplied by private interests currently. According to the Reason Foundation’s most recent privatization report, some 1,300 local, state, and Federal agencies contracted out some part of water service in 2008. Six privately operated plants reverted to municipal control the same year.

Much like the proposed parking lease deal, the attractiveness of selling/leasing the water system hinges upon opportunities for profit and much of that is tied to debt load and the City’s audited financial statements show that the Authority has $881 million in outstanding net debt, about $150 million more than the general obligation debt of the City itself.

Questions on Garage Plan

An alternative has arisen to the Mayor’s plan of leasing Parking Authority garages to a private interest in exchange for a lump sum payment (that sum would be used to pay off the Authority’s debt and bring up the asset total of the City’s pension funds): making the pension funds the "owner" of the garages.

News reports describe the transaction as "giving the pension fund ownership of some or all of the city’s 11 parking garages". It is doubtful that the pension funds could buy the garages as that would further deplete the low balance of the funds, and it raises lots of questions about the merit of this proposal versus the lease or sale.

Would the Parking Authority’s bondholders allow such a transfer? Would the Authority board resist "giving ownership" away? Could they be compelled? How would the lump sum needed for the pensions be realized? How would the pension funds-which hold $52 million in debt securities and $207 million in cash and cash equivalents-do owning publicly owned infrastructure? What becomes of the debt elimination plan for the Authority?

The Mayor says he is open to the alternative and that "if this ends up being the proposal, that’s fine" while also noting that the transaction "doesn’t equate to real dollars" the way a lease or sale agreement would. Clearly it is going to take time to explore the proposal, all the while the clock on restoring the pension funds to health continues ticking.

Putting the Cart before the Parking Lease Horse

Now comes Councilman Dowd with legislation requiring the Parking Authority to receive City Council approval before it issues requests for proposals to sell or lease the Authority’s assets. This is a bit premature as well as ill advised.

Cast your mind back to August and September when pension reform legislation was being hammered out in Harrisburg. The City pleaded with the Legislature to give Pittsburgh two more years to solve its woefully underfunded pension plans. One of the major promises made by the City was to privatize through a lease agreement the Parking Authority’s garages. By so doing, the City hoped to raise as much as a net of $200 million to be applied to the pension plans to bring them up to 50 percent funded.

The City has been talking about a lease of parking garages for about a year and still has not issued a request for proposals-RFPs. This is a necessary step to determine whether there is a bidder who will offer enough money to make the deal worthwhile. It does not represent a commitment to proceed with any RFP responders.

By requiring Council approval 60 days in advance of issuing RFPs, the process could get bogged down in endless wrangling over RFP language and delay a process that needs to be expedited if the City is to meet its obligation to have its pension plans 50 percent funded by 2011.

The City has committed itself in good faith to the Legislature to pursue leasing the garages. To put road blocks in the path so soon after the pension reform legislation was enacted would surely raise legislators’ eyebrows. What will be next-approval of the deal itself after the contracts are drawn up?

It is time to proceed swiftly and carefully to get the deal done. If the City does not meet its 2011 target, its pension plans will be placed under state control with onerous payment provisions, the very thing the City fought to avoid. Is the plan to scuttle any parking lease and then go back to the legislature and ask for more time or perhaps even direct financial aid to cover pension shortfalls? Is this yet another cynical effort to ensure major privatization never comes to Pittsburgh?

One would think that a mayoral veto is inevitable if the Dowd bill is passed by Council.

Lingering Problems at Pittsburgh International

The Allegheny County Airport Authority has released its budget for 2010.  And while it contains a very slight increase in expenditures over this year’s budget it has been necessary to boost airline charges to cover expenditures and to reverse a decline in revenues. These higher costs will ultimately be passed along to passengers or lead to lower profits for the airlines.

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