Friday, April 10, 2009

Last Week's Financial Fireworks, Part II

The resolution authorizing the City of Pittsburgh to enter into an agreement with nonprofit institutions to document a commitment made by these organizations to provide limited voluntary financial assistance to the City for the years 2008, 2009 and 2010...

...in lieu of, I presume, the possibility of instituting other mechanisms of revenue collection on some of them during those coming years #cough# taxes #cough# service charges...

... was held pending its own special post-agenda discussion by the Council, which has been scheduled for April 30 [.pdf].

Highlights:

Theresa Smith was the first to speak against consummating the voluntary agreement. She said she would feel "hypocritical in accepting this money today" in light of the fact that the Council recently set aside legislation making it easier for seniors to receive a tax break owed them under State Act 77.

Bill Peduto very much approved of the idea of a special meeting: he said he has "files and files" of data on our present arrangements with the nonprofit community and what those might instead become, and was keen to have the forum to lay it all out.

Darlene Harris offered, "When I see commercials in the middle of a Superbowl, and the City isn't getting anything..." and she just trailed off in exasperation. She was in no hurry to approve the agreement before the Council.

##

Then the previously tabled ordinance (Dowd's originally) providing that the City Treasurer take responsibility for according State Act 77 property tax breaks to eligible seniors, instead of having them apply for it separately each year, was revived for its own post-agenda discussion: a week sooner, on April 21 [.pdf].

Prompted by this renewed interest, Ricky Burgess mentioned his shelved legislation requiring "revenue-neutral budget conciliation". He is leery of the financial implications that the facilitation of this existing tax break, as one example, would have on the city's new 5-Year Plan.

Patrick Dowd, in response to Burgess's keen interest in keeping the 5-Year Plan scrupulously balanced with itself, said, "I feel like this budget is based on false revenues and hidden expenditures."

Dowd leveled the following criticisms of the plan and its utility:

1) Pittsburgh employs no facilities maintenance plan -- even though every year, Pittsburgh does wind up allocating significant resources to fix up its public buildings. The strategy for doing so year-by-year is never presented, and the expenditures appear nowhere in our annual budget document.

2) Payments coming in from other entities are over relied-upon to inflate the budget. Ratepayers from the Penn American water company, Dowd said in particular, are required to prop up the budget each year. Past payments from the city's School District were also mentioned.

3) The City, he alleged, has been annually declaring certain incoming moneys as "revenue" -- even though these are really "pass-through" moneys which are predestined to leave the city's hands and go on to their intended targets.

"The reason we're in this situation," Dowd said in conclusion, referring to the acuteness of our continued financial jeopardy, "is because it's a shell game". Neither Burgess nor anyone else said anything in response to those criticisms. Revenue-neutral budget conciliation has yet to be scheduled for any further discussion.

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Lastly, bonds. Water Authority bonds.

The "forward bond swap took place in 2007," as Dowd described the genesis of the deal -- what came later was "the second sort-of-necessary component" to yield $2 million in short-term savings in 2008.

It was merely this back-end of the bond swap, in other words, that Dowd voted to approve as a Council member.

Aside from that, he acknowledged a lot of discomfort talking about it at the table, since he has already raised the issue so vociferously through the press as a component of his mayoral campaign. Relatively briefly and sheepishly, he urged the Council to empower the Controller put a $15,000 contract up for bid for the purposes of fiscally auditing Water Authority bond "swaptions", including at least the swap of 2007-2008.

Jim Motznik was the first to protest: "I don't support using tax dollars" to conduct the audit, he said.

"The Water and Sewer Authority should vote on it. If they voted it down, I'm sure there was a reason."

Darlene Harris then called attention to Dowd's vote in April of 2008 to approve what he just had termed "the second sort-of necessary component" of a "2007 forward swap deal". She had a great many notes arrayed before her, to which she referred to underline and italicize that arguable inconsistency.

"On April 29th, you said..." Harris would begin, time and again. It was almost always April 29th, but she sounded genuinely miffed.

Harris also bemoaned how long it was already taking the Controller's office to get around to an audit of Animal Rescue services she had requested, and still other audits in line.

Doug Shields on the other hand said upon his turn, "I don't have a problem with it."

Referring back to the time the deal was struck, Shields recalled, "We asked what's the deal. They didn't want to give us the information then."

Shields then let loose an interesting bit of data as he was explaining his position. "If the Budget Director thought it was okay to loan $45 million to the Water Authority..."

Some background: Scott Kunka serves both as Mayor Ravenstahl's Budget Director, and at the pleasure of the Mayor as a Water & Sewer Authority board member. $45 million is the same sum we remember from Ravenstahl and the ICA's proposed debt assurance account. There have been rumors floating around that yet another Water Authority bond machination was the original intent of what Kunka has been describing as the City's "extra" $45 million -- that is, until the Mayor appointed Dowd to the Water Authority board late last year, and the deal subsequently was discarded.

"There's some smoke there," offered Shields, by way of wrapping things up.

Bill Peduto then recalled for us that when the deal in question originally came to Council, he was "shouting at the Budget Director, at [State Rep. Don] Walko," who chairs the Pittsburgh Water and Sewer Authority (PWSA). Apparently, useful information was not forthcoming in as timely a manner as Councilman Peduto would have liked.

"We are the government," Peduto clarified, perhaps for Councilman Motznik's benefit. "We must oversee that."

Peduto further alleged that the audit "will also look at" a bond deal/deals struck in the autumn of 2006.

The discussion having come back around to his turn, Dowd repeated his defense of the familiar criticism that has been making the rounds, which was now arising from a fellow Council member at the table: that he voiced support for the bond deal along with a unanimous Council in April 2008.

"If you don't do it in '08", Dowd reiterated, by which he meant go through with the back-end of a forward-bond swap from the previous year, "You don't get the savings projected in '07."

Dowd also clarified that the audit he is proposing would be performed by an outside agency via an RFP, not by Controller Lamb himself -- so it would not delay other pending audits.

Harris then objected that "using words like bankrupt" (which Dowd has been known to use in the media) is "damaging to the PWSA". She warned of the bad impact this could have on the Authority's credit rating, and thus its ability to sell bonds in the future.

After further assailing "that inaccurate information" of Dowd's, and pointing out again that the City Controller is backed up on audits, Darlene Harris concluded, "It's just a bad time."

##

Doug Shields opined that "rating agencies take public comment with a grain of salt -- it's whether you've got a market, and the underlying financials."

Shields went on, "as far as the bond markets go, I trust them as far as I can throw them." And once again, on the audit, "I don't think it's a bad idea."

Theresa Smith said of Dowd's proposed audit, "I think it's a good idea," but "I do think we need to wait until some of the audits come back."

The preliminary vote to perform the audit went as follows: Ayes 3 (Shields, Peduto, Dowd), Nays 4 (Motznik, Payne, Harris, Smith), Kraus not present, Burgess not present. The final vote probably will be conducted on Tuesday.
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19 comments:

  1. City council's role is to govern. Peduto said useful information was not forthcoming in as timely a manner with Don Walko (bailing to judge candidate now). Yes, City Council must "oversee."

    Meanwhile, city controller's role is to audit.

    Michael Lamb's office is lagging, to say the least. He needs to get moving much faster and smarter.

    Citizens should not be happy to see the wires crossed.

    Council got hoodwinked by Walko. Shame on them. They should NOT have voted yes then.

    Controller is pussy-footing around. Shame on him.

    Walko should not be a judge as he didn't run with square deals at the authority.

    Without a facilities maintenance plan goofy money gets sunk on the shell game of moving police stations (Zone 3) and BBI, etc. So, council should budget for a facilities maintence plan. That's council's job to make and pass a budget. (Another fumble.)

    Dowd is not on the Water Authority board so I'm sure he already ironed out the bastard dealings with Penn American Water Co. -- right? WRONG. Just fix it.

    As a member of council, holder of the purse strings, Dowd should insist and convince the others that all "pass-through" moneys in the budget be identified, documented, accounted for and properly handled on the city's books.

    There is enough blame to go around to all of them.

    But, the way to get out of the mess is to focus on purpose.

    City council should NOT be paying for audits of past ills it empowered that should be done by other branches of government until AFTER council gets its own act together. Above is but a sample of areas to improve upon first.

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  2. The strange thing left out of every article that I have read about the PWSA, except for one in the Tribune Review, is that it saved the PWSA over $ 90 Million Dollars over a 30 year period. Yes it has cost $2 million more than expected, but simple math shows that the deal itself still saved the city money.

    I love that you now blindly trust everything out of Dowd's mouth. Please do the math on the bond deal.

    Yes, people make money on bond deals. If I owed $400,000 dollars on my house, I would gladly spend $20,000 Dollars to bring that money owed down to $310,000. Even if I originally hoped to only owe $307,000.

    You may disagree with the use of variable rates, but as of right now it is quite a stretch to be arguing with the math.

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  3. Mark - I agree that the city shouldn't spend $15,000 dollars when there is a controller and I believe I read in one of the articls that the PWSA will have an audit that will be complete later this spring.

    Lamb isn't pussyfooting - he has simply checked out the deal and didn't see a problem that isn't already trying to be fixed.

    Walko hoodwinked council and shouldn't be a judge? You make it sound like Walko is some kind of sleazy banker and not just the volunteer chairman of the PWSA.

    Keep up with your conspiracy theories. Good luck on ever getting elected.

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  4. Just to be clear: Walko's a sleezy politician. The bond deal had considerable windfalls for no-bid sleazy bankers.

    I said "pussyfooting," in part because Councilwoman Darlene Harris bemoaned Lamb's delay of an Animal Rescue audit.

    "Conspiracy" confirmed with Dowd's desire for an outside agency audit via an RFP, NOT by Controller Lamb himself -- so it would not delay OTHER PENDING AUDITS.

    BTW, I'm not trying to get elected. Ds Walko, Dowd, Motznik and Ravenstahl plus Peduto (unopposed) are seeking election wins. Smith and Payne seek votes too, FWIW.

    Hoppy Easter, Anonymous.

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  5. I don't argue with the math.

    To use your example, would you get in a position to owe $400,000 on a house that still needs like $4 TRILLION to fix (ever hear of the rain water run-off problem that hasn't been addressed) and is worth about $40,000?

    I argue with the value delivered in light of the price paid in the past considering the costs yet to occur.

    I also argue about the delivery of good governance by those in office today as well as in the past.

    You should win the argument about the math. Must suck being a bean counter in a time without any beans yet great hunger.

    The greater goal is for good government with purpose, not good math by those who deliver folly.

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  6. WhatAreYouTryingToHide?April 10, 2009 at 12:07 PM

    Anon 11:16 said....I agree that the city shouldn't spend $15,000 dollars when there is a controller and I believe I read in one of the articls that the PWSA will have an audit that will be complete later this spring.

    Sure, anonymous 11:16 - there will be an audit of the pwsa this spring, but that audit doesn't look at the bond deals. It simply confirms that the numbers on the PWSA books. (revenues and expenditures).

    To protect the ratepaying public, an audit of the bond deal is necessary. To ignore what has occured in other communities, and say it didn't happen here would be foolish.

    -------------------------------
    Prosecutors have informed at least five former JPMorgan derivative bankers that they're targets in an investigation of whether banks conspired to overcharge local governments, according to the Financial Industry Regulatory Authority, or Finra, the largest self-regulator for securities firms doing business in the U.S.

    The Securities and Exchange Commission is conducting a civil probe of the deals.

    -------------------------------

    Why would the feds get involved if there is no problem with these deals?

    Sorry anon 11:16 - You either have no idea what you are talking about or are motivated to keep the public from really understanding how badly they were ripped off in those bond deals.

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  7. Mark, you say: City council should NOT be paying for audits of past ills it empowered that should be done by other branches of government until AFTER council gets its own act together.

    Well, then we could be waiting forever, couldn't we?

    We can't afford to base decisions on what the various branches of government 'deserve' or what 'serves them right'. Having the information at hand as a City early -- if it DOES turn out to be interesting -- would be extremely helpful in reaching a negotiated settlement of some kind.

    And the Controller, love him or hate him, can't get that job done fast enough. Probably better to go to a wholly disinterested 3rd party for this anyway.

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  8. Bram, no. Not wait forever. Hell, Lamb's term is up in 3 years or so.

    Let's get him in gear.

    Are you saying that Lamb will NEVER do his job? You must mean that then.

    We can't afford to have different branches of government doing jobs that are not their own after not doing the job that is theirs to do. That's what can't be done. That's folly in the highest order. That's expensive.

    The information was at hand, early -- within the city -- within City Council's chambers. Council's duties can't be ignored any more.

    If the controller can't get the job done fast enough then he's not well suited for the job.

    I don't want wholly disinterested 3rd parties governing. Hell, Lamb sounds like a wholly disinterested 3rd party now if he is doing an audit (as hinted at above) in the spring and won't look into this too.

    And, city council was a wholly disinterested party 3rd party when it gave the rubber stamp to the original bond deal.

    Even W&SA board members are seemingly disinterested stewards -- as they now seek seats on the bench (i.e., Walko).

    Pittsburgh has far too many wholly disinterested people -- so let's not advocate so as to create more of them.

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  9. TheBillisInTheMailApril 10, 2009 at 1:10 PM

    The preliminary vote to perform the audit went as follows: Ayes 3 (Shields, Peduto, Dowd), Nays 4 (Motznik, Payne, Harris, Smith), Kraus not present, Burgess not present. The final vote probably will be conducted on Tuesday.

    I find it interesting that Motznik, Payne, Harris, Smith voted against an audit. After all, they are residents of Pittsburgh and all residents of Pittsburgh have to pay a monthly PWSA water bill.

    As this bond deal continues to head south, causing their water bills to head north - Will they still be comfortable with the position they took on this issue?

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  10. My response to following observation copied from above:

    "Dowd leveled the following criticisms of the plan and its utility:


    1) Pittsburgh employs no facilities maintenance plan -- even though every year, Pittsburgh does wind up allocating significant resources to fix up its public buildings. The strategy for doing so year-by-year is never presented, and the expenditures appear nowhere in our annual budget document."

    I concur.

    monk

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  11. I concur is not an adequate response.
    .
    I have begged for 10 year plan for City-County Building for some years now.
    .
    The complexities of retrofitting building in it's waning days is no easy undertaking. Closing in on a century of existence. Original steam system and AC systems from 1969.
    .
    Building is shared with County. Big problem, not for tradesmen who can work together, but bureaucrats, both City and County.
    .
    As owners of building City should throw out County and assume all maintenance. Charge County accordingly.
    .
    Take tour of both City and County spaces within CCB and ask yourself which you would rather occupy.
    .
    On the horizon, issues with fire suppression and delivery of potable water will be at forefront.
    .
    Mr. Dowd is right on money. County Controller some years ago suggested that Government buildings supplied by PACT should build own boiler plant to ensure efficiency.
    .
    I was in total agreement with Mr. Flaherty. Paying way to much for heating steam...

    monk

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  12. Anon 11:11 - Do you have that link? All I can find is an alleged $25 million in short-term savings; I can find that the bond sale generated $98 million; and I can find this: "The authority's plan to push debt obligations further into the future will spare customers from an immediate rate increase, said Pittsburgh Finance Director Scott Kunka" LINK, which does not sound at all comforting in itself.

    Ordinary, old-fashioned, generic bond issues can generate $100 million or whatever other sum one desires. The key is in the interest an issuer pays out on it, the risks, and the accumulated fees over the life of the deal. So I'm not sure "the math" is how you say it is.

    However, you could be right. Let's audit the thing and find out! People seem to be missing that this is not a resolution tearing up and burning the bond deal, nor is it a resolution declaring Patrick Dowd a hero and a genius. It's an audit to explain to us the risks and the likely outcomes of that bond deal.

    Mark - This is the first time I've heard it alleged that Michael Lamb is lazy and incompetent. I shouldn't dismiss it out of hand, because I'm not a financial whiz and maybe Mr. Lamb is simply charming as he gives off an air of credibility.

    (Also ... the 3rd party isn't being asked to "govern", it's being asked to perform a financial analysis. I don't see how this is philosophically abhorrent.)

    However, I don't see that these are important differences. If we could get a full accounting of the bond deal tomorrow by kidnapping executives at JPMorgan and tickling them, I would be in favor of that. I don't care that the Council should have caught this the first time around, I don't care that it would be better if our Controller to do it. KNOWLEDGE IS POWER, and knowledge of that bond deal -- if it can be discovered that our vendors misrepresented its terms or otherwise failed to maintain minimum standards of due diligence -- gives us the power to rescue ourselves from that deal.

    That's the bottom line. Figure out how to get out of the bad deal, if we need to. That's why I want the audit on my desk tomorrow, when it might be used in concert with those efforts presently coming out of Erie, Butler and elsewhere. It's worth a measly $15K to potentially save the City tens or hundreds of millions. That's a lot of swimming pools. Why not let the City find a way to go back and fix its expensive mistake? It starts with an audit.

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  13. "Without a facilities maintenance plan goofy money gets sunk on the shell game of moving police stations (Zone 3) and BBI, etc. So, council should budget for a facilities maintence plan. That's council's job to make and pass a budget. (Another fumble.)"

    Mark, is this the plan of moving BBI into police stations also, or moving BBI altogether?

    For years money has been allocated for facilities maintenance or upgrades,( big secret) why the money was depleted and the work was never performed.

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  14. IF Pittsburgh employs no facilities maintenance plan and IF expenditures appear nowhere in the city's annual budget document ---

    THEN City Council should fix it because City Council has control of the budget and the spending of money.

    I would be impressed by a council representative if he/she offered a facilities maintenance plan, even as an amendment by substitution, as a part of the budget.

    Has Dowd done that with the city's budget?

    I know the city school's facility maintenance plan took a major jolt with Schenley and beyond. Shaft! Now consultants are in to navel gaze. But that's a different story with a common thread, 'shell game.' OMG.

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  15. Missing post note, grrr...

    Did you see the one from me that started with knowledge is power and ended with Subpoena?

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  16. Mark 9:34 - No, but that sounds funny.

    Mark 9:30 - Ditto on the facilities maintenance plan. However to design an intelligent facilities maintenance plan (FMP?), one would need a huge and multi-skilled staff to gather and interpret the data on our buildings and how we might fix them. Probably best if you could make your research team ACTUALLY be the city's facilities maintenance staff, Public Works, et cetera, i.e. BE the mayor. Council members have themselves, a rolodex, and authority over 3 or 4 living wage earners (with excellent benefits) on a tight budget, most of whom are answering calls about potholes. Perhaps we should start an FMP wiki to get it done -- or we could vote for Doctor Dowd, who has a point.

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  17. One does not even need to start a FMP (FMP seems too much like FileMaker Pro) wiki as the FixPA.wikia.com wiki is available and more than up to the task.

    BTW, calls about potholes should be directed to 3-1-1.

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  18. They are directed to 311, and then sent to public works to fix them. Mayor's hotline that is the priority, especially during election time. To hell with everything else.

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  19. what? 5-6 people blogeting .. no one cares.

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