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.

Is the State About to Disapprove Pittsburgh’s Pension Plan?

Last New Year’s Eve, City Council enacted an 11th hour scheme-with the ICA’s blessing-designed to prevent a state takeover of the City’s pension funds. That plan depends heavily on using parking tax revenue to create an income stream for the pensions over the next 30 years with a purported present value sufficient to boost the pension’s funding ratio to 50 percent.

As we have noted previously, it is not clear the agency charged with evaluating whether or not the City’s plan is adequate will approve the scheme. For one thing, legislative promises to allocate parking revenues sufficient to create an adequate funding stream are not permanently binding. Unlike a loan or bond debt, there is no contractual arrangement with any party forcing the City to carry out the promise. A future Council could simply ignore the 2010 legislation or rewrite it. Beyond that, the evaluating agency must decide if any proposed income stream is as good as cash on hand in meeting the 50 percent funding requirement.

Moreover, the fact that pensions are boosted to 50 percent funded still leaves the enormously difficult problem of getting them to funded ratios that can be viewed as safe or satisfactory, say 80 percent or higher.

There seems to be a fairly high probability the evaluating agency will deny the Council scheme on the grounds that it is inadequate or on the grounds that the behavior of Council vis-à-vis the Mayor in addressing the state’s ultimatum over the past year leaves a lot of questions about the motives and ability of the City to fulfill the requirements laid out by state legislation.

In that case, the state will take over Pittsburgh’s funds and will force the City to raise the annual contribution sufficient to boost the funded ratio and most likely require a lump sum payment immediately. Ironically, the payment amount might not be a great deal more than the Council’s parking tax allocation. The difference is that with the state mandating the payments, the City would have to comply or face possible sanctions.

Too bad the Mayor’s plan to lease the Parking Authority assets was so summarily and quickly dismissed by the Council. Some effort to modify the plan but that would have left over $300 million (the proposal was for $400 million) on the table would have been a tremendous step forward to fiscal sanity for the City. The implacable attitude of Council toward any and all privatization is unseemly and harmful to the City’s future well-being.

This is the same City extolled in a recent Op-ed column by Stephen Beschloss as a guide for Congress on how it might learn to set aside differences to accomplish great things for the American people. How utterly fatuous in view of the facts.

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.


Continue reading

Officials Fiddle As Credit Rating Teeters

Moody’s has downgraded the City of Pittsburgh’s financial outlook from "stable to negative." While the City keeps the A1 rating from 2008, the rating agency obviously has misgivings about the direction elected officials are taking in trying to deal with the massive unfunded pension liability, other legacy costs and bond debt.

One can only wonder how long the City can hold on to its A1 rating as it fritters time away and fails to deal with the coming jump in payments to the pension plans. Officials hoping for a surge in economic growth in Pittsburgh that would boost tax and other revenues are likely to be greatly disappointed given the struggling national economy that is unable to shake off a prolonged period of recession and near stagnation. Thus, it has become incumbent upon the City’s government to take some painful steps to address the "negative" financial outlook.

What credit rating firms do not see is any effort on the part of the City to reduce its spending through paring back non-essential services, outsourcing or privatizing services or even making a serious effort to consolidate services with the County or enter into contracts with the County to provide services.

Council has made it painfully clear that privatization in any form is unwelcome as shown through statements objecting to leasing the parking authority garages and City parking meters. It’s all about protecting jobs of City employees. The long running objections to outsourcing garbage collection when that particular function is carried out by private companies all over the County and state point to intransigence and irresponsibility toward taxpayers that are woven into the fabric of Pittsburg governance. Moreover, the Council’s insistence on passing prevailing and living wage ordinances demonstrates a pitiable lack of understanding of economics and the importance of free markets to economic growth.

In short, it is amazing that Moody’s ever assigned an A1 rating to Pittsburgh. How could Pittsburgh, which has been under financial oversight by two state appointed groups for the last six years and where officials have failed to reduce spending and payrolls to per capita levels more in line with other U.S. cities, be considered an A level credit risk?

Hoping for a Miracle

Pittsburgh’s City Council and Mayor must be hoping for a miracle. They have rejected each other’s plan to avoid a state takeover of the City’s pension funds. As a result they are looking down the barrel of a financial howitzer in January if they cannot cobble together a plan to raise $220 million over the next few weeks. And even if the $220 million can be raised, the pension problem will still require bigger City contributions going forward.

Yesterday’s briefing by the Pennsylvania Municipal Retirement System officials pointed out just how massive the unfunded pension problem is and the staggering amount of money the City will have to come up with over the next 30 years-as high as $3.6 billion in one scenario.

And Council’s response? One idea is to renegotiate the terms of the rejected lease agreement offered by the LAZ-JP Morgan group: unlikely to happen because reopening the terms would require another bidding process. Otherwise lawsuits would be flying. Another idea is to sell parking meters to the Parking Authority, a plan strongly rejected by the Mayor. Yet a third idea is to have non-profits pay more in payments in lieu of taxes. Good luck with that one.

Indeed, the Council seems to be praying for a miracle. Having rejected privatization with such gusto and self-righteousness a month ago, they have boxed themselves in. There are no other good choices and the bullet will have to be bitten. There will be no bailout coming from the state; it has its own problems. And as we noted in a Policy Brief yesterday, the Pittsburgh school district will need more revenue soon as well. Pittsburgh taxpayers cannot be happy at the prospect of a double hit in their tax bills.

This is what happens when tough problems are kicked down the road year after year. Where has the Act 47 management team been for six years that it has allowed the City to get to this point?

Lamb Plan Falls Short

Controller Michael Lamb has proposed a plan to fund Pittsburgh pensions that would meet the requirement of reaching 50 percent funded by December 31st in order to avoid state takeover of the management of the City’s pensions. His plan is designed to keep the parking assets under government control as opposed to leasing to a private company as the Mayor is trying to do.

Under the Controller’s plan the Parking Authority would purchase the City’s parking meters and any City owned lots or garages for $150 million and dip into the City’s reserve funds for $60 million to reach the $200+ million the City will need to put into the pension funds by year’s end.

Sounds okay so far. The garages and meters remain under government control (although the Authority is not strictly City government, it does have City appointed directors) and the state takeover is avoided. But there are serious problems with the Controller’s plan.

How does the Authority raise the money necessary to service the $150 million in new debt? Under conservative terms and, given the fact that the Authority has $100 million in debt and has net assets of only $63 million, it is likely that borrowing costs for the $150 million will be at least $9 million per year for 30 years. To generate added revenues for the Authority, the plan calls for Authority parking rates to rise 3.5 percent per year for five years-far lower than the planned parking rate increases under the Mayor’s lease proposal.

The problem with the smaller rate increases is that after five years they provide only 19 percent more gross revenue per year than currently collected and that assumes no loss in usage levels stemming from higher rates. Unfortunately for the plan, a 19 percent hike will produce only $6 million to $7 million more in revenue by year five and, because of higher taxes and other expenses, will produce a net revenue gain of only $2 to $3 million. This is certainly insufficient to pay the debt service on $150 million. Indeed, under assumptions of modest inflation for parking rates and expenses, it will take about 15 years before annual net revenue is able to cover a $9 million debt service payment.

In short, it appears unlikely the Authority will be able to get $150 million in bond financing under this plan. And even if the Authority could get very favorable bond rates the gain in net revenue for the first ten years would be inadequate to cover the added debt service costs. A net present value calculation of the plan estimates the Authority’s 30 year net revenue stream under the Controller’s plan to be less than $90 million-well below the $150 million in new debt that is being sought.

Beyond the funding concern is the Controller’s plan to dip into reserves for $60 million to supplement the $150 million in order to meet the December 31st deadline. The plan calls for the City not to make its next payment to the pension fund in order to restore the reserve. But that would push the funding level back under 50 percent and is likely to cause the state to reject the plan. Clearly, the notion of withholding any future contribution to the pension fund has to be off the table.

All things considered, the Controller’s plan faces a very steep uphill battle. Even if it has a chance of working, there is virtually no possibility of getting it done by December 31st in light of all the questions bond underwriters will have and the time needed to draft the legal documents necessary to arrange the sale of parking facilities to the Authority. Many details would have to be worked out before drafting the legal documents can even get started.

“P” Day in the ‘Burgh

Today is the day that City and Parking Authority officials open the envelopes containing the bids that they hope will be sufficient to retire the Authority’s debt (around $100 million) and bring the pension fund to a 50% funded level ($200 million needed to accomplish this).

It is the high point of the process that began in January of 2009 when the Mayor viewed it as "another piece of the ultimate…plan for the long-term legacy costs of the city of Pittsburgh…clearly, in order to have a fully funded pension fund we’re going to need some sort of influx of cash." The idea germinated and advanced through 2009 and received endorsement from the state last September when what became Act 44 was amended to give Pittsburgh the time to pursue the lease.

So what’s up for grabs? Close to 18k spaces in garages, lots, and on-street metered spaces, most in the Golden Triangle. Seven bidders were pre-qualified to bid on the package, and the City clarified some of the stipulations on rate increases, areas where the City and other government agencies could not compete for the life of the lease, and the responsibilities of the Authority and the lessee.

According to newspaper reports the bids will be opened behind closed doors and if the high bids are close then those firms will have until Monday to give a final and best offer. If one of the bidders comes with what the City views as far and away a best offer today that will be announced this evening. Then it will be in City Council’s hands for approval.

What Will Council’s $250,000 Parking Study Accomplish?

City Council wants to leave no stone unturned and wants to make sure that when it decides to approve or disapprove of any agreement the Mayor reaches with a potential lessee of parking facilities that will provide funds to bolster the City’s ailing pension funds it will base its decision on a thorough examination of facts and options. That’s why, with the blessing of the City’s oversight board, Council will spend $250,000 to engage a consulting group to study the lease-for-pensions deal. 


Continue reading

City Double Parking on Lease Idea

Under the timeline contained in the "Request for Concessionaire Qualifications" released by the Pittsburgh Public Parking Authority earlier this year, prospective bidders interested in entering into a long-term lease for the publicly owned parking assets were to submit responses to the RFQ by March, due diligence on the applicants would be done through June, final proposals would be due in July, and a close of the deal would occur in November.

That timeline is predicated on the fact that the purpose of the lease is to turn an up front lump sum into a deposit for the anemic pension funds. Under existing state law, if the City can show a 50% minimum funded ratio (assets/liabilities) by the valuation taken in January 2011 then it is business as usual. If that 50% is not met, then the state is going to take over administration of the plans.

So one has to wonder what, if anything, the proposed action by City Council to spend $250k by amending the Capital Budget and Community Block Grant Budget to engage a consultant to study the lease idea does to that timeline and the plan. Presumably, Council is going to have to sign off on the lease idea in the end (notwithstanding any complicated financial arrangements, the Authority owns the assets up for lease consideration) and wants to have the best information available. But what happens if their analysis stretches past the established period of due diligence that is supposed to wrap up this month? What if it even goes into the dog days of July when the pool of bidders (11 parties as of March) is submitting final proposals?

Parking Employees Receive a Guarantee

In announcing that not one, but two, law firms will help guide the City is leasing its garages, lots, and meters in order to find a bundle of money for its ailing pensions, the new chair of the Parking Authority board stated "authority employees…would not lose their jobs due to the lease deal."

That likely means the Authority-with administrative employees as well as those that staff garages and lots-will likely be part of the City government landscape for years to come. That’s surprising in that the Mayor wanted the Authority’s $108 million debt to be erased as part of the lease deal. With no debt to retire and no garages to manage and staff, why keep the Authority around?

Perhaps the chair meant that employees-at least the administrative ones-will become part of the City’s organizational chart to oversee compliance with the lease. Or maybe he meant that the successful lessee will have to hire garage and lot employees to take care of maintenance. Of course pay and benefit levels will be sacrosanct.

What’s the next assurance-that rates won’t go too high or that rate increases cannot happen too close to one another?