Thursday, October 14, 2010

State Municipal Pensions Czar comes to Pittsburgh [SHORT UPDATE]

Starting at 10:00 AM, drink every time Secretary James Allen starts to say, "The most critical thing to do is inject a truly significant sum of cash into the fund quickly, such as through your..." and someone like Councilman Dowd goes, "DEAD DEAD DEAD LA LA LA I CAN'T HEAR YOUUUUU..."

*-SHORT UPDATE: The Secretary was very careful (having received an education to some extent on the current drama in 'Burgh politics) not to allow any of the Council members to maneuver him into lending much support to their own pension recovery alternatives. His focus was, "Not only are you severely underfunded, but more importantly your cash flow is $30 million in the negative -- and that tells me you need a plan pronto. I can assure you that PMRS is a non-political fund management device with a long and stable record in conservatism when it comes to risk and responsibility -- which should not be confused with "the State" much less "the Legislature". Details tomorrow. There was also this.


  1. Hello, helllooo?

    Kinda reminds me of a movie with a Nuclear Submarine.

    They chased a signal from the southern hemisphere... to Alaska.

    War had pretty much leveled Northern hemisphere...

    Fallout carried upon global wind patterens, was death sentence.

    The becon, the signal that Sub chased was nothing more than Noggin-A-Bloggin.

    Skull resting on keyboard gave false promise to Sub.

    Humanity died, amoungst Kangaroo.

    If only Blogger concentrated upon events leading up to ammargeadon?

    You Mission Bram?

    Keep the faith that Sub will chase Your position.

    It feels good to sign:


  2. The Secretary was very careful (having received an education to some extent on the current drama in 'Burgh politics

    Shooting down a 50 year deal with an organization like JP Morgan is dramatic? Why?

  3. LAZ operates the system. JPMorgan provides LAZ with the capital. The 90,000 page contract we negotiated controls everything which may or may not happen during the lifetime of the lease.

    Just to be clear on your position: is Pittsburgh never to do any business with major investment banks? There are only a handful of them in existence. World-class cities condescend to deal with these from time to time. If council-Lamb takes out this $220-$300 million loan, who will broker and purchase the bonds, the guys' down at George Aikens?

  4. Bram,

    The problem with JP Morgan et al is the pressure they will be under to generate return on investment for their still unnamed investors. So, thay have to have enough money to pay of the money they borrow, invest in the facilities to keep the revenue coming in and produce substantial retrns on investment. This need for revenue will force them to not only push the envelope on that 90,000 page agreement but likely to breach that agreement. When that happens, who do you think wins the court fight. The little City of Pittsburgh or giant JP Morgan?

    The bond deal on the other hand significantly lowers the cost of capital. First there is no profit motive or need to generate those substantial returns. Second, the borrowing can be done tax exempt.

    It's just a better deal for the taxpayers and the parking rate payers.

  5. Um, doing a bond deal means the investors are getting a GUARANTEED return on their investment, and the borrower bears all the risk of a revenue shortfall. So you're basically just locking in your worst-case scenario in advance (that somehow, someway, the entity providing the capital will manage to squirm out of bearing the revenue risk).

    You are half right, though: if the City continues to play politics in favor of subsidizing parking rates, a bond scheme will likely be better for parkers. But it will be WORSE for taxpayers, since they are the ones who are going to have to come up with the money to pay off the bondholders when parking revenues fall short.

    So, in short, you would prefer to transfer the revenue risk from the parking investors to the taxpayers, and greatly increase that risk along the way by leaving parking rates in the hands of politicians.

    Sounds awesome.

  6. By the way, Council's own freakin' study went through all this and figured out how to price the revenue risks into the value of a lease of the assets. The study came up with a number, $400 million, and since the bid is higher than that, the deal is a good one from a financial perspective according to that study.

    So people really are just BSing when they purport to have an argument to the contrary. Your argument has to be that leaving politicians in control of parking rates is better than doing what is best for the City financially, because you aren't going to be able to do any better than Council's hired guns to prove it is a bad deal financially.

  7. In fact the deal is not a good one. When you subtract out the cost and fees to the advisers, and the significant costs of defeasing the parking authority debt and consider that the new operator gets control of the funds on hand at the authority, the deal to the public is actually less than 400 Million. Plus 400 million was considerred an extremely conservative estimate of present value.

  8. BrianTH,

    What do you think will happen under the lease when the revenues fall short??

    Those garages will become blights on this community and we will be buying them back just like we had to buy back the liens we got soaked into selling.

  9. Actually, Council's own freakin' study said that a state takeover was best

  10. huh, i didn't realize that you're actually working for burgess now, bram.

  11. The study considered all those transactional costs, but from a financial perspective, they are largely canceled out by the costs associated with any other means of refunding the pension (as the study reluctantly concluded, since they knew Council wanted a different answer). You aren't going to get new money to put in the pension and improve the parking assets at the same time for free, so the question is which deal minimizes those costs and is consistent with the best public policy.

    As for the present value calculation--it was appropriately "conservative", based on the possible risks to future revenues. And the City in particular should be VERY conservative in making such calculations, because it already faces concentrated financial risk in the City. That is why sovereign funds are not supposed to invest in assets located in their own jurisdiction.

    Moreover, the study implicitly assumed the City would operate the parking assets in an optimal way, including with respect to making necessary capital investments and rate decisions. To put it mildly, the risk of that not happening is nontrivial, so the estimates should have been even MORE conservative.

    As for what shortfalls in revenue would do to the operator: it depends on how severe. If they are relatively small, the operator will likely be able to absorb them. If they are severe enough, the operator will likely go out of the parking business in Pittsburgh.

    But what is the risk to the City in that scenario? I don't understand this claim about buying the assets back--the City would have no such obligation. They may RECEIVE the assets back . . . and if the revenue shortfall is severe enough, they may well decide to reallocate many of those assets to something besides parking.

    Indeed, I consider that a fairly plausible scenario--something like Google's driverless cars plus Zipcar's carsharing system may end urban driving, and thus urban carownership, and thus urban parking, as we know it. In that case, the parking operator will likely go bust as revenues fall way below forecasts, and the City will get the assets back, and then it can convert a lot of those assets into something more useful.

    And that is the sort of risk the parking operator would have to accept in making this deal. But in the name of letting politicians keep control of parking rates, we will instead insist the City take those risk with its future finances.

  12. Anon 10:32 said,

    When you subtract out the cost and fees to the advisers, and the significant costs of defeasing the parking authority debt and consider that the new operator gets control of the funds on hand at the authority, the deal to the public is actually less than 400 Million.

    I'm unclear as to the cost of fees the extraneous as well, but wouldn't that be more than offset by the bump in the parking tax?

  13. Anon 11:40 - My instinct was to leave that go as beneath a response, but I'd better not. No, I am not working for any city official or other stakeholder.

  14. Bram has always been buddy with Burgess's office. He went to high school with someone from his office.

  15. Is the "unicorn milk" beginning to spoil?

  16. Fooled me. This place has become Burgess Central since you restarted.

  17. I agree, it's always the Rev who's the clear thinker. You're so in his camp that it's predictable and obvious. Keep making excuses for him Bram, we're on to you.