Tuesday, April 7, 2009

Last Week's Financial Fireworks, Part I

Several interesting discussions took place on Wednesday, April 1st, during City Council's standing committee meetings.

First came the administration's request of the Council to sign off on an agreement with the ICA which would place $45.3 in something akin to an irrevocable trust fund; or "set-aside money" for repayment of debt, according to Finance Director Scott Kunka.

Kunka explained that although the financial markets have conspired to make it impossible to leverage $5 million savings off of this in the manner outlined in the 2009 budget projections, another refinancing opportunity has been identified for 2012 that also would make profitable use of these funds.

Councilman Patrick Dowd responded during his turn that it was "good to hear you acknowledge that at long last", and that "that was my expressed concern at the time" -- October 2008, during annual budget hearings. The majority of Council approved Mayor Ravenstahl's budget over Councilmen Dowd's and Peduto's objections.

Since the money was transferred to a different city account right as those talks were taking place, Dowd asked Controller Michael Lamb if the agreement has essentially been enacted already.

"We haven't done that", Lamb clarified -- it is not secured under terms of the agreement which has yet to be consummated.

Kunka tried to make some clarifications about what appears in the "draft agreement". Councilman Doug Shields cut in out-of-turn to implore Kunka to cease calling it a "draft" agreement. "No one signs and executes a 'draft' agreement", Shields insisted. Some cross-talk ensued.

Kunka at length rallied to clarify that the Finance Department has created an account for the vehicle, but hasn't put the money in it yet. Dowd asked Kunka that if by putting the money into that account, would that be what the ICA had once referred to as the "fund in the nature of an irrevocable trust" which is designed to "lock the money away" for debt.

"That's your characterization, Doctor Dowd" began Kunka -- which prompted Dowd to clarify,"Councilman Dowd. I'm a Councilman."

Councilman Jim Motznik then jumped in out of turn to deplore the "personal attacks" at the table.

Peduto gently tapped the gavel, begging "Guys guys guys guys," and explaining for the record that there have been no "personal attacks" made.

Dowd asked Kunka who would get to decide to use the money in that fund and what it would be able to be used for; he pointed out that the 5-year forecast calls for it to be used for "certain obligations" but that alone. He also wanted to know the deadline for using this money, since the ICA potentially could cease to exist in 2011. Dowd also revealed a hard-line position in favor of "locking it away" for debt.

Kunka opined that to lock the money is "really not prudent". And as to putting it away under a formal financial defeasement agreement, "Why put it in another account with new fees?"


Dowd yielded for the moment and Shields took his turn. After arguing with the City Solicitor at length over the meaning of "draft agreement" -- this appellation for the agreement obviously irritated him -- Shields also contended that the $45.3 million transfer that had already taken place in 2008 was illegal. "But here we are."

Nonetheless, the Council "graciously" approved the 2009 budget, Shields said, in part because some members recognize the possibility of a force majore which would require breaking into the piggybank. What he wanted to know was, much like Patrick Dowd, what are the proposed parameters for who gets to make those decisions.

Kunka insisted that the preparatory transfer that had already taken place was not illegal and that the parameters for the funds is clear in the agreement -- it would take the "City's" and the ICA's joint approval, and it would only go to pay down debt.

Shields said rather this agreement would merely "a-ssure" people (as opposed to en-sure) that Pittsburgh has set aside money to pay down debt -- and critically, a role for Council is not specified. He alluded to some "tax issues in Alabama", and complained that the administration has held up the Council's duly budgeted hiring of a city attorney for three months, who might help in these matters.

Shields demanded a motion to hold the bill until these matters were addressed. No second was forthcoming at that time. Finance Chair Councilman Bill Peduto cut him off for time purposes and proceeded to Councilwoman Darlene Harris's turn.


Harris asked Lamb directly, was the initial money transfer illegal? Lamb said, "No, we move money all the time."

Kunka chimed in that other cities are talking about layoffs, and we're talking about how to spend "an extra $45 million the City's been able to accumulate."

Harris began asking if the Council would have to approve an expenditure from the special $45M debt assurance account, and Kunka answered that the administration would be limited by Council's appropriation. They can't spend money if the Council doesn't ask for something generally. Also, it itself can be used to make annual debt service payments.

So the way that would work (if I understand correctly) is that money would be withdrawn by the Mayor and the ICA from the ordinary debt service fund for anything the City decides to spend money on, and then money would be transferred from the $45M special account to replenish the ordinary debt service account. So in the final analysis, yes the fund could be expended on anything the City routinely desires, at the Mayor's and the ICA's joint discretion.

Councilman Ricky Burgess began by saying he's "a great fan of Mr. Shields." That's he's "extraordinarily knowledgeable", and a real "treasure" to the City of Pittsburgh for these reasons. He then asked Controller Lamb directly if he has a problem with the agreement.

"I don't have a problem with it per se," responded Lamb. "I think we should lock it away," meaning in a real irrevocable debt defeasement account -- this would enable the city to truly write debt off its books, which he described as a "technicality". The suggested method may be "Okay from the Finance Department's cash-management system", but not from "the point of view of City financial reports." But aside from that "philosophical" issue which he does not get to decide, the agreement on the table is not problematic in itself.

As to Burgess's question what would happen if the ICA sunsets and dissolves, Lamb (or was it Specter?) said he believes actually the City Controller steps into that role.

"Okay," began Burgess. "You three say we can approve this. If the Controller had a problem, I'd say no. Or Specter." Or the administration's Director Kunka, the third. And so Burgess left the impression he'd be supportive of the agreement.

Then he floated a proposal of the approximate type he has made in the past and says he will continue to make in the future -- that all future casino revenue should go right into debt service. Does anyone at the table have sympathy for that idea, Burgess asked?

"Sympathy would be the right word, yes," said Kunka, smiling broadly.

Lamb clarified that $10 million of that was already factored in to the 5-year plan. Burgess appreciated that input, but suggested that anything in excess of that sum also should go toward debt service.

Motznik chimed in to agree with Burgess's comments, and to emphasize that the City is "saving a lot" on this deal. He asked that for casino revenue, maybe it should be split between debt and pension funds. "We're all gonna be using that pension fund one day."

Councilman Peduto used his turn to say he voted against the 2009 budget for these very concerns. He agrees with Lamb on the "philosophical" distinction of the need to lock money away. Furthermore, by not mentioning a role for Council, he opined that Part 2 and Part 5 of the agreement could run afoul of the Home Rule Charter. He said he would support Mr. Shields's recommendation to hold the legislation.

Back again to Dowd: he said, "the agreement is the crux of the 5-year plan", it's "foundation". He supports the fund "in concept", but the way it's being done is with a "lack of accountability." "We're just handing it over and hoping." There is "no mechanism for holding the Mayor or the ICA accountable" for what they choose to spend it on.

Furthermore, Dowd alleged there's not sufficient detail as to what debt is going to be repaid. If 2012 "is so ripe and good, we should tie it down." In short, it's missing a time frame, a series of bonds, and projected savings calculations. That gets back to accountability.

Harris declared her intention to vote yes on the preliminary vote, but to get together with Shields and Peduto during the week-long interim before final action to attempt to improve the agreement with respect to their reservations about it.

Councilwoman Smith said the same thing.

Councilwoman Payne asked, "I thought accountability was in that it could only be used for debt."

Kunka said, "The point is, we don't -- we want to have the flexibility."

Shields motioned to hold the legislation up again. "We all want to see things moved along," he allowed, but if the legislation does not change in a week, "then it'll be a recommital" at final action, meaning back to the drawing board anyway. He said the ICA was open to making certain alterations, but it would take some time and serious attention. This time Shields's motion got a second from Dowd, so it was voted upon.

On the motion to hold: Ayes 3 (Shields, Peduto, Dowd), Nos 5 (Motznik, Payne, Harris, Burgess, Smith). Kraus not present.

On the ensuing motion to grant preliminarily approval to the agreement: Ayes 5 (same as nays above), Nos 2 (Shields and Dowd). Peduto abstained in the spirit of trying to "work with the administration."

Next on the agenda would come: whether or not to levy payroll preparation taxes or certain fees on certain non-profits, the possibility of instituting revenue-neutral budget conciliation, and a proposed audit for the 2007 PWSA bond swap deal.


  1. Whatever happened to that progressive council majority of Shields, Peduto, Dowd, Krause and Burgess? Looks like the East End tree huggers (see Motznik quote from Sunday's PG story) are out in the cold again.

  2. Don't count your chickens, anonymous. Besides which, in these circumstances I think its more accurate to refer to them as budget-hugging progressives.

  3. What an odd comment from Burgess praising Shields.

    Something smells.

  4. Elaine, those comments by Burgess seemed at least partially in response to Shields' lengthy objections to terming the proposed agreement a "draft" agreement. Shields had a point about Kunka's presentation, IMHO, but it was becoming one of those situations where Our Council President goes a wee bit off the rails.

    But also, yup.

  5. Thanks for the clarification.

    But something's up. Shields not running for mayor; Motznik sucking up too . . .

  6. Maybe I need to clarify further. When Motznik agreed with Burgess, it was in reference to the debt assurance account and to socking away gambling revenue. It was not explicitly in reference to Doug Shields being a civic treasure, but I'm positive all nine Council members view each other that way.