Wednesday, August 4, 2010

Do. Harris Serves Warning on Pension Efforts (*)

You guys remember F. Dok Harris, right? Ran for mayor?

Well, as attentive watchers of the Comet News sidebar already know, he penned an open letter to Mayor Ravenstahl regarding the proposed parking lease deal and on efforts to shore up the pension fund in general.

We'll leave style notes aside. Essentially, he highlights for us an important and under-discussed fact about our city's pension fund management -- and he makes some familiar and in my opinion hackneyed political arguments against the lease deal -- and he shakes them together vigorously, hoping they'll blend.

First the good point:

In the worst of financial markets the Fund lost over $120 million in a year. Unfortunately, in the best of markets, the Fund did not experience the high returns that it should. In fact, looking between the years of 2005 and 2007 (during the recent bull market), the value of the fund rose $1.8 million dollars -- or 0.4% of the Fund's balance of $373.6 Million. To put this in perspective, the S&P 500 had a 2-year change of 21.75% over the same two-year period. (Harris)

Harris goes on to illustrate how bad this is -- we'd have done 20 times better to put the money in a normal bank account or in no-risk U.S. Treasuries -- and he raises the nauseating prospect of what happens if our multi-hundred million dollar infusion from a lease (or from a bond, or from robbing a train) meets the same fate.

(*-UPDATE: This analysis is proving incomplete in a way which at least exaggerates any under-performance.)

Why did the fund do so poorly from '05 to '07? Anybody? Mayor Ravenstahl can't be blamed too much personally (the buck stopped at his desk for only the latter third of that span at best) but I wonder, if the problem was with the fund managers, has anyone been sacked? If my net worth remained flat while everyone else in my neighborhood grew a quarter, I'd be looking to sack somebody, or at least for a good explanation and then a describable course correction.

So, let's get going on that angle.


The other part of the cocktail is less novel, but I may as well use it here to jump off with my own take:

I would hope you are able to do a better job of explaining to the citizens of Pittsburgh exactly what the proposed lease means to them on a daily basis // We must, however, be completely transparent at how this transaction will affect the every day quality of life of Pittsburghers // The people of Pittsburgh should not be forced to pay $4.00 to spend an hour at a local store. Our local small business owners should not be punished for the city's malfeasance // Pittsburgh can, and must, avoid the problems that Chicago faced after a similar lease transaction took place. (ibid)

And so forth, with certain details.

Where to begin ... "the problems that Chicago faced", to the extent that there were any, stemmed from their lease being passed hurriedly and with almost no public or official scrutiny, let alone public warning and preparation; with Neolithic and noncompetitive processes for selecting consultants and operators; and with an unfortunately botched roll-out.

Whereas in Pittsburgh, we have been discussing this for almost two years, and at an extremely high if not compulsive intensity for the last few months; we all have the terms of the lease in hand, much to the Mayor's disadvantage (as its alternatives are either top secret, not-quite-existent, or receiving far less scrutiny); we have and are bidding out all work to the reasonable satisfaction of everyone reasonably possible; and hopefully we will have learned from Chicago's experience to get the technology right the first time.

Justified shock and outrage in Chicago aside, I would be interested to learn just how many small businesses therein have dried up like raisins in the sun since the city set market rates for parking. Has its downtown or neighborhood business districts experienced horrific shrinkage? Has the region emptied out? My impression is no.

Because these are not "punitive" rates, rather "market" rates.

For those for whom money is tight -- and that's most of us -- it's fairly easy to park on a side street and walk to a corner business. I've been doing this for years. Or if one has a job or an errand to run Downtown, one can take the bus. Or finally, it's annoying but not impossible to pay four bucks (or Downtown, four bucks more) to warehouse your big heavy gas-guzzling steel palanquin -- think of it as buying a retired police officer or firefighter or road crew worker a beer, in addition to your own three or four.

Nobody "deserves" to be punished for the city's past malfeasance -- but does that mean we must hide from our creditors? Will it "punish" small businesses any less to raise their property or wage taxes?

Parking rate hikes will only impact some people -- typically those resolved and capable of spending a bit of green anyway. And, happily, it impacts many who are driving in the first place because they "live in Pittsburgh" yet noticeably far away. Market parking rates will provide them at long last with the satisfaction of knowing that they are full-fledged contributors to their hometown.

In conclusion: business owners will complain because it is their job to scrape fiercely for their every slightest advantage. Yet we know that if they provide a quality product or service, they will live and thrive regardless. Let's those of us responsible for the whole city and its future demonstrate a little backbone.


  1. It is a dubious claim at best that market-rate pricing is bad for local retail. Congested streets and lack of available parking are also bad for local retail, and rationing parking by ability to pay is not obviously worse for local market demand than rationing parking by how little value people put on their time.

    Of course maybe what they are saying is they want unlimited supplies of free parking and free roads none of which they have to pay for--but that ain't happening where land is scarce.

    By the way, it really irks me when people describe revenue measures as punishment. On rare occasions the purpose may in fact be punishment, or a combination of punishment and revenue, or at least something like punishment (e.g., pricing negative externalities). But in the vast majority of cases, it isn't personal, it is just about needing the money.

    So it disappoints me that Harris adopted this sort of mindless anti-revenue rhetoric.

  2. Harris is riding wave of Anti-Luke-ism, only to crash upon stoney shores.

    What is his occupation, public service and education?

    Bram is more opine, for he does so freely, with eloquence and passion.

    And, I for one, am very grateful.


    PS: North Shore Connector + Drink Tax = Win for Corbett!

  3. If Dok Harris cannot figure out the difference between Ctrl+I and Ctrl+B - I have no confidence in his ability to understand State pension law and parking elasticity.

  4. Monk is presently in the penalty box serving an overdue 5-minute major for babbling, but via e-mail he is insistent that Anon 3:27 define his/her use of "elasticity".

  5. I'm just happy to see Harris has figures to show just how poor the fund has been doing at investing. I'd been alluding to those figures in the previous thread on this and was starting to feel obligated to look it up until I read the Harris memo.

  6. I have 2 scenarios for you:
    1) Downtown after dark. It is currently a great place to find free street parking and enjoy a movie or a drink. There is no non-metered parking downtown and quite honestly, I will take my business elsewhere rather than pay $4/hour of downtown parking at night - doubling the cost of a movie or drink. I'd be happy during daylight hours to snag a spot downtown for only $4 / hour.

    2) Neighborhoods like the South Side where there is already a lot of friction between residents and visitors. You're proposing that yet more people will be trolling the residential streets in search of free parking which will only exacerbate those issues further.

    Bram, I totally agree with you on the parking garages downtown. Raising weekday rates will drive more people to public transportation. But when it comes to metered parking in neighborhoods, people will change their habits. I'm happy to pop in a couple quarters while shopping at the Strip or in Brookline, but it will hurt business when that fee jumps to a couple dollars an hour. And while I may be happy knowing that I'm doing "my part" for the pensions, most people don't give a damn and will go elsewhere.

    What I don't like about the parking plan is that it takes away the choice from the city and puts it in the hands of someone who doesn't give a damn about our small businesses. And I'm leaning towards the bond issue. Or how about a combination? How about we lease the parking garages for whatever we can get for them then put out a bond issue for the balance while maintaining control of the meters?

  7. Sometimes the firms that are selected to manage pension assets underperform.

    Yet somehow they persevere and figure out a way to remain involved.

  8. One thing is clear, Pittsburgh cannot be compared to Chicago. That goes for anyone trying to use Chicago as an example on either side of the argument. For starters, Chicago already had a terrible parking situation. I'm sure that those who have never been outside of Da Burgh will believe otherwise, but Pittsburgh actually has a fairly good parking situation. Further, Chicago only leased its meters - not garages (although I don't think it had many). Finally, Chicago is about 10 times the size of Pittsburgh with massive public transportation infrastructure. It just ain't apples to apples.

    Now, here is a deal I would like to see. I would like the Mayor to use 25% of the funds to be earmarked for public transportation infrastructure. Expand the T to Oakland? Perhaps elsewhere?

  9. If that "open letter" doesn't prove Harris is a blowhard who has no answers and no grasp of the situation he self-importantly prattles on about for three pages, this attempt to explain how he would solve the pension crisis sure does...

  10. When you put $50 million into the fund, and you pay out $80 million, why would you expect the amount in the fund to increase?

    Keeping the fund level is probably a really good job by the investment firm.

  11. Illyrias - Alright, the South Side is one neighborhood where it is difficult to find a spot even blocks and blocks away from a desired business, and where there is already a good deal of friction between visitors and residents. Very true. Probably why Kraus is in opposition. But in addition to increased parking pressures, one might hope increased meter rates could also lead to more carpooling -- and in turn to more designated driving -- and possibly, getting charged more hourly will get a few of those kids the hell away from those taps a bit earlier in the evening. So I can see it being a wash as far as quality of life goes.

    Your Downtown at Night scenario, I'm having a harder time recognizing the danger. If Downtown amenities are cool enough (and they are, at least to those who are going there), $4/hr strikes me as reasonable enough. (Or $2, or $1, depending how many folks are in your car for this pleasant evening). The fact that presently "free" street spaces are so widely available is actually a function of the fact that Downtown is still more empty than we'd like it to be. Ideally, either way, you should soon be forced to settle for garage parking, is what we all want.

    BUT I DON'T MEAN TO ASSERT there would be no impact or "pain" to instituting market rates ... so I don't want to dwell on mitigating arguments such as yours. I just think that the consequences of repaying what I've heard reliably enough would be $450 million needs to be war-gamed out every bit as assiduously as we are the lease. I'm not sure we'll be driving to our parking spaces upon paved streets if we blow our credit on a transfer to the pension fund. And there's just something elemental-seeming to me about taking our medicine and confronting our problems now.

    Or how about a combination? How about we lease the parking garages for whatever we can get for them then put out a bond issue for the balance while maintaining control of the meters?

    That's a nifty idea. But would we be raising the meter rates to pay off this bond for the difference in not leasing the meters? And would that involve our also absorbing the transition costs of purchasing and installing new meter technology? Because if we WOULD be raising meter rates to the point of getting less than our present 7.5 minutes per quarter, I'm not sure it makes sense to continue using meters which only take quarters.

  12. Anon 8:57 Is RRZ (or its principals and/or fiscal talent from back in 2002) also in charge of our city's pension fund management today, or more to the point was it in '05 through '07?

  13. You can see a movie downtown? I didn't know that. As for drinking downtown, if you can still drive home, you're doing it wrong.

  14. I do tend to plan my shopping trips to Shadyside or the Southside for times when I can usually get a street parking spot and avoid the garage fees. But, when I'm going out, I'm happy to take a garage spot and pay the bucks to not have to worry about plugging the meter.

    As for the pension shortfall, how about we sell the garages and keep the meters, but look for alternative sources of money from commuters. We need something that doesn't require the permission of the state. The best way to do that would be to have a city public works truck run out of gas on the inbound Squirrel Hill tunnel at 7:30 a.m. every day for a week. And the next Monday, we call up, for example Murrysville's mayor and say that it would be a shame if two vehicles were to both run out of gas this week, but that we didn't really have enough money to put in more than a gallon in each city truck.

    I got the idea from Breezewood, but my way is better because for a price we would stop blocking the interstate.

  15. The best way to do that would be to have a city public works truck run out of gas on the inbound Squirrel Hill tunnel at 7:30 a.m. every day for a week. And the next Monday, we call up, for example Murrysville's mayor and say that it would be a shame if two vehicles were to both run out of gas this week, but that we didn't really have enough money to put in more than a gallon in each city truck.

    The Fort Pitt and Liberty tubes could suffer the same unfortunate circumstances. Only one problem: The undesirables from Cranberry will still get into the city uncontested.

  16. They probably won't take my idea. The Port Authority never even got back to me about my suggestion that, instead of the drink tax, they raise money by selling beer from a cooler on the bus.

  17. Some of the nightmare scenarios don't actually make sense. If you price your parking so high no one wants to use it, that isn't market rate pricing, that is above market rate pricing, and your revenues will suffer as a result.

    Now to be sure, there may be a gap between the revenue-maximizing price and the socially-optimal price. But it isn't clear that the revenue-maximizing price is higher than the socially-optimal price--it may well be lower. That is because parking that is too cheap may lead to street congestion, but the parking operator may not have internalized that problem.

    Anyway, all this is not to claim there can't be problems with implementation, which in fact is why cities are now experimenting with more flexible and smarter parking rate schemes. But in broad theory, the notion that a parking operator would price their spots such that most of them were empty despite potential demand doesn't make much sense.

  18. I'm receiving more feedback pointing out that Anon 10:14 has a point when s/he writes:

    When you put $50 million into the fund, and you pay out $80 million, why would you expect the amount in the fund to increase?

    Yup. The pension fund isn't a static lump savings sum, and 3 years worth of required pension payouts weren't factored in. Another couple of important math steps would still be required to gauge performance. A-10:14 continued:

    Keeping the fund level is probably a really good job by the investment firm.

    I don't quite want to co-sign that, because it's still very possible that the fund performed rather poorly during the period of '05 to '07 -- just not quite so abysmally "20 times worse than it should have" poorly.

  19. What's sad is how little $200 million does to the pension fund. In 2 years we could very easily be in the same boat, what is sold then?

    I don't have any answers, but at least the mis-management of the pension fund is being talked about.

    I'm against the parking plan because it doesn't actually solve anything, it just delays inevitable.

  20. So, I just read the first part of Potter's piece on the parking garages. The mayor was saying that without selling the garages, we'd have to see property taxes go up by 25%. Was that just the city portion of the property tax? Because that wouldn't be so bad, especially since the election following it would at least be competitive.

    If the city portion has to increase so much your whole property tax bill goes up by 25%, that would be another thing.

  21. MH - I don't know the answer to your question, MH, or just how facetious you're being about "wouldn't be that bad" (I suspect rather to very). I just want to add that there are two other good companion pieces in the City Paper -- one on Downtown garages and one on the community meters -- that don't seem to be online. Folks may have to track down a physical copy.

  22. I wasn't being that facetious. If it is just the city's portion, it would be like $20 to $30 a month on an average house (unless my math sucks). I would, of course, complain about it and vote against everyone who supported it, but there is no plausible scenario in which I don't complain and vote against all local government incumbents anyway.

  23. As a point of political philosophy, I prefer a broad-based tax to a narrower one (all other things being equal). Obviously, all other things are often not equal and a broad-based tax will often be too regressive.

    In my opinion, the worst thing (democracy-wise) is when you let a government disguise the true cost of something. The amount of this hiding we've seen from Bush and then Obama and the even more pointless congressional Republicans is just staggering and I'm getting more and more irked.

    The aspect of hiding the costs is my main objection to the parking garage sale. The whole thing is structured to keep the costs as removed as possible from anybody's mind at an election. Given that 'hiding the true cost' is how we got into the situation with the pension being hugely underfunded in the first place, I'm especially eager to avoid any sale for the pensions.