Tuesday, September 28, 2010

Peduto: "The State Had a Plan" [*-UPDATED: with link to Lamb's plan]

Looks like I'm gonna have to eat some crow after all:

Those who oppose Act 44 try to scare people with claims that we will have to make severe cuts, or raise property taxes – or worse. They say that the state will come in and mandate terrible tax increases and harmful cuts to the city. It is unfortunate and of course it is not true. WE can also find a way to get to the additional $27 million – it is possible. If we do, we will then have a more stable pension plan, will not have to borrow money and will not have given away over $3 billion in revenue over the next 50 years. (People for Peduto e-blast)

Is Councilman Bill Peduto coming out provisionally in-favor of the state pensions takeover? If so that would require altering the rhetoric from something other than "state takeover".

"State plan". "Selfless relinquishment". "Not it." "Union kyrptonite."

ANALYSIS: My actual concern with the concept is this: let's grant his math is correct and under the "takeover" the city will have to scrape only an extra $27 million worth of ink out of the budget next year, and let's grant that this can be done. Would not those pension payments due to the state inflate to even crazier levels the following few years?

The political calculus reads: hmm, that's interesting, nobody needs to actually amass five votes to approve the takeover! One needs only to play a prevent defense against the Mayor's plan (the lease), the Council President's plan (bonded debt) or the Controller's plan (unicorn milk *-UPDATE: sell-hike-borrow) getting any five votes of their own -- and the takeover wins by default.

But even further, hmmmmm ... take a look at the swingingmost votes: Harris is singularly unlikely to stick a fork in labor's eye, and Dowd is singularly unlikely to jump onto a Peduto brand bandwagon. Maybe it would have been best to keep this effort entirely obfuscated like a Palpatine, but now it's been e-blasted and blogged upon. Whoopsie.


  1. More and more people are agreeing with me these days. Usually either too late or at the last possible moment, bit it is an improvement.

  2. Gee, who could have predicted people would be ignoring the Council study's calculation of present values, and using the highly uncertain gross future revenue amounts instead?

    Which, incidentally, are being "given away" in this little accounting, as opposed to being exchanged for a combination of cash and required capital and operating investments.

  3. Unicorn milk turned out to be selling some of the assets to the Parking Authority in return for $150 million. Which they will have to borrow, then raise rates to pay off.

    Now someone is going to have to explain to my why, in substance, that is different from a revenue bond.

  4. Yes, here is the link to that which I will no longer make fun of for being mysterious:


  5. Wait a second, this is complete bull from Peduto. Wasn't it Peduto that led the charge AGAINST every single new revenue stream Ravenstahl proposed? During those discussions, how many times did the Mayor said, "show me an alternative?" What did Bill come up with - NOTHING. What is his plan now? Again, NOTHING. He generically states that he can find revenue, but from where? We need leaders who are willing to make tough decisions not "the party of no" without any real ideas.

    I'm not crazy about the Mayor's lease plan, but show me the alternative?

  6. An alternative? The Lamb / Dowd pair appear to have successfully struck their ball into the applicable Service Court. Return?

  7. Borrowing the money to put into the pension fund has indeed always been an alternative option--in fact it has been done before.

    But Council's own hired-gun/scholar explained why that isn't likely to be a good option. In a nutshell, you can't expect the risk-adjusted return on the pension investments to beat the cost of borrowing--just the opposite, so you are likely taking a long-term financial hit on such a transaction.

  8. Thanks to the Fed, rates are artificially low right now. Unicorn milk is a much better solution than making a 50 year deal with the likes of JP Morgan and Morgan Stanley.

  9. And the internet is so closely regulated that you cannot use the personification of correctness as a pseudonym unless you pass a special test that is like twice as hard as the test to sell real estate.

  10. ....said the financial scholar.

  11. I actually agree with you on the substantive point.

  12. Who do you think buys municipal bonds? It is all the same people. And rates being low is a big part of why the lease amount came in pretty favorably.

    The real difference is who bears the revenue risk. If you lease the assets the revenue risk is on the operator. If you issue a bond and hope to pay it back with revenues, you bear the revenue risk.

    And there is no good financial reason for the City to be loading up on revenue risk--just the opposite. Hence, the only reason to prefer the bond is that it gives you more control over parking operations, and you have to make a public policy case for why doing something less sensible financially is nonetheless a good public policy.

  13. Bram,

    This one looks like Lamb only...no Dowd.

  14. Hence, the only reason to prefer the bond is that it gives you more control over parking operations...

    The bond is a smaller sum and going that way means the current mayor and city council have less spending discretion. Based on regression to the mean, I’m guessing we have better than even odds of getting slightly better leaders in the future.

  15. Unicorn milk sounds like a tasty drink. I think that I will have to try some. http://www.idrink.com/v.html?id=43672

  16. "The bond is a smaller sum and going that way means the current mayor and city council have less spending discretion."

    What's to stop them from issuing another bond for the other $300 million (the remainder of the present value of the assets according to the lease bid) and blowing that?

    The lease deal actually locks up more money, because it would also be used to cancel some debt the Unicorn Milk plan would leave untouched.

    Seriously, the only real argument for the Unicorn Milk plan is that it allows City politicians to keep operating the parking assets as they see fit for the next 50 years. I view that as a downside, but others may enjoy the prospect.

  17. "What's to stop them from issuing another bond for the other $300 million (the remainder of the present value of the assets according to the lease bid) and blowing that?"

    They can't buy the assets they already own.

  18. What's to stop them from issuing another bond for the other $300 million (the remainder of the present value of the assets according to the lease bid) and blowing that?

    Nobody is drunk enough to lend them that kind of money without security.

  19. BrianTH - That's a key, nigh-intractable difficulty. I don't think any PGH administration can really be constituted to get away with making a modestly conservative argument: talking about how the gov't might be inherently poor at running something or maybe should not. There was an article in the Trib about how in some public systems, lots of parkers just don't get charged for parking somehow, and then there are odd things on the employment end. But expect little serious discussion about whether for myriad reasons we can realize the revenues which a private leaseholder can expect.

    Which is to say nothing about how after months of looking forward to learning how much the assets are worth so we can depend rely on that independent scientific data fact number, now we're talking about how much REVENUE can be generated over the course of a lease without mentioning the EXPENSES we also necessarily incur.

    Blah blah. I guess at this exact moment, I am not seeing how Borrow-Sell-Hike puts us on footing more solid than the lease deal, though the lease might POTENTIALLY make us more A BIT more solid by A) eliminating authority debt B) not emptying the reserve fund and C) if we plow enough of the extra $80 million or so into pensions also. I certain see how it keeps parking rates substantially below market-rate though.

    For those of you who can't get unicorns out of your head, yay!

  20. If your goal is to drive business out of the city and further reduce our tax base, then the LAZ-JP Morgan parking lease deal is a great idea.

  21. I wonder what Paul O'Neill thinks of all this? He'd be the one with perspective on this issue, not Sophie (Sry, luv!).

  22. Now that they have a valuation of the future revenues (two, in fact, although it is indeed important to note that both are premised on the operator making a lot of investments in the assets), they can issue revenue-backed bonds. Or just borrow on a general obligation basis at a higher rate.

    By the way, it really amazes me that some people honestly seem to think that a private operator would be interested in setting parking rates such that all local business would dry up and there would be no reason to park anymore.

    What a private operator actually would want to do is set fees such that occupancy was high, but not so high that finding convenient spaces was difficult (and if they enable space-locating wireless technologies and variable-fee systems, occupancy rates can be targeted even higher). They'd also be interested in working out deals with local property owners to provide "free" parking (which the property owner would pay for), and again technology can make that easier.

    The effect of all this is that spots would tend to go to those who value their time more than a small amount of money, and businesses which value the parking the most--which by no means is a bad thing for the local economy. It also happens to be good public policy, because people driving around looking for spaces causes unnecessary congestion on the relevant streets, and a host of other problems associated with unnecessary driving.

    In theory, politicians should be able to recognize all this and set fees to target more or less the same occupancy rates. They should also be willing to invest in the same technologies, work out the same deals with local property owners, and so on. But in practice, they don't: they keep rates artificially low to prevent those entrenched people with a sense of entitlement to the spaces from squawking, and defer investment in technology and deals because they get more kudos for other sorts of spending, tax cuts, and so on. Oh, and they get to put friends and supporters into various board positions, job slots, and so on.

    The bottomline is that people are basically arguing that a private operator would want to price themselves out of business. That makes no sense, but it is the sort of nonsense that politicians promote when seeking to hold onto power they really shouldn't have in the first place.

  23. The bottomline is that people are basically arguing that a private operator would want to price themselves out of business.

    Both sides are arguing that the world will end if we use the other plan. What's new there?

  24. As my mom would say, I don't care who started it, you should both stop.

    The basic argument for the lease is that: (1) it appears to be a fair deal that would be a good idea from a purely financial perspective because it would offload concentrated risks that the City shouldn't be bearing; (2) it would allow the City to retire a good chunk of long-term liabilities and improve the City's near-term cash flow substantially; (3) it would foster investment in upgrading the parking assets, improving their condition, making them more convenient, and so forth; and (4) it would foster better operation of the parking system from a public policy perspective.

    That's enough of an argument in my view--no need to claim world destruction if the lease doesn't go through. It just happens to be a very good idea, and personally I would be saying that even if there wasn't a pension threshhold to worry about.

  25. In an ideal world I would have posted just on this bitty quote this morning:

    "Mr. Lamb said that under state law, the city doesn't have to maintain the 50 percent funding level after that date." (P-G)

    Z'at true? It's not what I had been hearing, and I don't think I can think about these choices very effectively until that's 100% confirmed.

    Because frankly, now that people are actually talking about, "The state takeover's not so bad," I'd like to hear much more about that avenue. I had always suspected it might not be.