Wednesday, December 10, 2008

Mayor's Budget Passes First Hurdles, 5-2

Dowd, Peduto vote against. Shields not present for votes.

The meeting which had been recessed since Monday resumed with Patrick Dowd reading a letter submitted by the Intergovernmental Cooperation Authority to the Council "very, very late" yesterday, which he noted had been copied "very late" to the Controller.

At issue was $45 million the city would transfer with the intention of balancing future budgets "in the nature of" an irrevocable fund. This fund would be intended for defeasance or debt-service, placed under the custody of the City Controller, and subject to certain restrictions by the ICA.

Michael Lamb, when brought to the table, said he's had "no discussions with the ICA how it's gonna work." He said that fund appeared to be set up to be spent "how Council and the administration decides." In a conversation about whether it is appropriate or advisable to take those funds off the city's balance sheets in the interim, Lamb said ordinarily that is not the way it works.

Dowd compared the maneuver to saying one's mortgage is gone because one put money in one's savings account. Although in favor of sequestering monies to pay off debt in coming years, especially in light of legal requirements to show balanced budgets, Dowd insisted this fund provides "no guarantees".

Dowd then alluded to a request made just yesterday by the ICA to the Controller to transfer funds to the capital account -- a move ordinarily requiring Council approval. Lamb said of that request, "there are a number of accounting processes in this administration we need to take a look at."

When Bruce Kraus asked Lamb who would have access to this reserve fund and for what, Lamb responded the only way to access it is "a five vote on Council", and nothing necessarily determines how that money is going to be used. Kraus answered that "it's clear that an element of trust has to take place".

Lamb responded that it all depends on what the Council wants to do; he "doesn't have a dog in this fight". But if the Council wants the money off the City's statements, he suggested an "enforceable commitment" be made. If Council decided it were "serious" about paying down the debt, it should create a restricted account that must be additionally subsidized if it failed to earn the proper interest.

Ricky Burgess opined that "most of this discussion could have occurred in private". It's clear he said that the ICA has not yet created the terms of this (quote) "irrevocable fund" (unquote), and until that's done, "we're discussing this like it's an issue." He urged that now is not the time to discuss accounting differences, and trust that the appropriate restrictions and details will be hammered out off-camera.

Doug Shields concurred generally with Burgess. He said "the reason I'm not crazy about [a restricted account] is there's no turning back". Citing the need for flexibility in uncertain times, he couldn't see casting that money "in stone"; he preferred to put the funds "somewhere it might provide comfort to someone in Harrisburg".


Bill Peduto said, "Prior to this morning, I would have gone along" with the Mayor's budget as written. However, citing the request made by the ICA to the Controller to transfer funds last night, "now that trust is gone." He said the ICA "usurped the role" of Council by transferring that money.

In additionally, Peduto noted that the city has a reserve fund for if, say, the City-County Building catches fire or some such; the need for "flexibility" for emergencies is overblown. He would prefer to safeguard future debt payments.

Dowd mentioned that he had seen a "draft" defeasement agreement from the ICA -- and he bristled at the suggestion was about some obscure accounting principles. He suggested the Council "take a breath" until they see the defeasement agreement, this being its last point of leverage. Once the budget passes, "it's over".

Urging that on the issue of taking care of debt, "flexibility does not correspond with leadership", Dowd moved to hold the 2009 budget until the mayor provides a defeasement agreement with the ICA. This motion was overruled 2-5.

The tentative vote for the whole budget was called, and it was approved 5-2, with Dowd and Peduto in dissent. After a recess, the preliminary vote passed by the same margins.

For more detail: see notes in first comment below.


  1. Two additional things to note:

    1) A $200,000 line-item was added to the budget to pay for landslide remediation for Oakland Square, a neighborhood in Kraus's district. The agenda item came as a surprise to several members of Council. Five or six residents of Oakland Square attended the public comment period to urge Council to take action.

    I'm unsure of the final vote tally, but I know Shields wondered loudly to me after the session, "how did they get up to the front of the line?" He said a great many Pittsburgh neighborhoods are sliding down hills, and was particularly concerned about one in the 32nd ward that had been waiting and was in great need.

    2) During Dowd's closing arguments in favor of delaying passage of / rejecting the mayor's budget, on the subject of the options presently allowable for the "irrevocable fund", he muttered something darkly about charges and fees that could go along with certain maneuvers we'd be likely to contemplate.

    The ICA's letter did clarify that the fund could not be used to invest in PWSA's bond-swapping, but Dowd seemed to find it disturbing that Kunka would even contemplate that ... one gets the impression he's not looking forward to what they try next.

  2. Every neighborhood has hills falling down.

  3. The vote on landslide remediation I'm told is 8-0, but Matt's point above and Shields' point about the "front of the line" still holds.

  4. The ICA's letter did clarify that the fund could not be used to invest in PWSA's bond-swapping

    bond swapping?! I hope you are kidding.

  5. Not sure why the link got cut off

    you can find it here

  6. Here is a selection from Dowd's public "Dear Colleagues letter" in which a "bond swap" is mentioned. I don't know if all bond swaps are created equal.

    "Second, the Director of Finance for the City of Pittsburgh has suggested that the restricted fund might best be used to purchase variable rate bonds from the Pittsburgh Water and Sewer Authority. Here the adminstration’s logic is simple: having these high yield bonds in the city coffers gives the city taxpayers a
    greater return on their investments. However, we must remember that the payments for those bonds will come from the city’s water and sewer ratepayers. This would be the classic case of “robbing Peter to pay Paul” and one that violates our goal of becoming fiscally responsible. If the City wants to assist the PWSA as it experiences pressure due to the variable rate swap deal, I have already suggested that the
    City of Pittsburgh eliminate a portion of that authority’s payment to the city’s coffers."