Thursday, December 30, 2010

As Ball Drops, Council to Fix Takeover Avoision Measure Again. [**-UPDATES X2]

Hie thee to 2 Political Junkies, which is carrying a lengthy process story...

The hold up -- the reason why Council must meet again tomorrow -- is that upon further reflection by everyone (PERC, ACT 47, ICA) it was decided that the City must dedicate $735,680,000 over 31 years instead of $414.7 million (the difference between a 5% and 8% discount rate). (2PJs)

The P-G update linked to therein places a different emphasis on who first noticed there was a maths issue:

But the city's actuaries, brought in this morning to review the plan, thought otherwise, firefighters union President Joe King, a city pension board member, said. (P-G, Joe Smydo)

According to Maria, it's all going to be finished at 11:00 PM tomorrow. I had a strong feeling all along it was worthwhile to keep running the countdown widget to the right.

MORE: You're giving Null Space skin failure: LINK.

*-UPDATE: Now this is innovative -- in an e-mail labeled "RELEASE -- PENSION PLAN TO STAY IN CITY", the Council President's office forwards a PDF document of a preemptive, anticipatory veto override of a bill that hasn't been passed (written?) yet, signed by six members of Council (Dowd's not in town).

**-UPDATE, THE DEUX: In a sneak-preview of an article running tomorrow...

Responded Doven: "You don't need to be an economics professor from CMU to understand that council's latest three-ring circus act puts our city's financial future in great distress. Council's actions will put a giant hole in the city's budget next year and for each and every year after that for 30 years. And our pension fund will still face serious funding obstacles, even with council's action to drastically increase parking rates." (Trib, Bill Vidonic)

Well, then what is this? I mean, really? All of the concerns about the near-term solvency of the fund, the holes in future annual budgets, the inefficiency of investing this funding stream in this way and the uncertainty of it being judged sufficient yet being utterly intractable really do make sense. And clearly it's important for the Mayor to signal his disapproval by vetoing all this. So then why not do what's available to put a stop to it? Enough has changed.


  1. 11 tomorrow night? Parts of it will probably copied from the encyclopedia.

  2. They'll fuck it up

  3. I really shouldn't, but I'm going to allow that.

  4. I don't see how they could possibly avoid a frack up. It would take a well functioning organization to find a $220 million and being caught blind for $220 million is a good sign of a poorly run ship.

  5. Yes Bram, it is important that we consider what Joanna Doven thinks of all of this...

  6. She speaks for the Mayor, right? If he didn't want to trash the plan she wouldn't be trashing the plan.

  7. I assure you that any difference in emphasis (on who had problems with the math) was due to my trying to rush that post out before leaving for my day job (OK, evening job) -- and yeah, I was a few moments late getting to work. Also, I'm guessing that the 11:00 PM meeting is to be there just in case...

  8. I still don't get this. Aside from this being just a promise, it is a promise of something we are already spending to meet current obligations. Unless they are raising the tax, which they can't, this means our 2011 budget will unapproved by the Act 47 people. If they said they parking tax will start to go to the pension in 2012 or something, that is such an obvious dodge that the state leg would have to be stoned to fall for it.

  9. Well MH, it's not "just" a promise, because when our legislated pledge of future revenue becomes a pension fund asset, it is made intractable. You can't withdraw things from the pension fund once they go in, it's not just another city account -- it's a one-way turnstile. That's part of what makes this a dice roll. But the thing is, it's a dice roll whose object is 100% to protect local pension fund authority for the time being, not to advance the solvency of the fund by even a remotely significant increment.

    Again, it's my speculation that most of State legislature and PERC don't really care about us, but do care about preserving face by not having their well-intentioned bluff get called.

  10. the one-way turnstile concept is fiction Bram. It is a section of city code and city code can be changed just as it was put in. Nothing anywhere can take away the city's right to do that.. kind of the point of having a home rule charter.

    But to go along with the story is fun. City code changes and parking tax revenue isn't there. Or say the parking garages collapse and can't be rebuilt because we decide it makes sense to drill for natural gas on those sites.. Then what? The pension fund (which isn't even notionally independent of the city as a public authority is) sues the city (itself) for the 'promised' revenue stream?

    Even Wettick is solomonic enough to sort this out. What would be poetic would be if say Tom moves over to Civil and gets the case.

  11. You dvr'd this right Bram.. Find the very first part where this started yesterday morning. I think PD had this line about revoking the fund in the form of an irrevocable fund in order to irrevocably fund the pension fund. I swear that is what his motion was. I need to get that transcribed. It about sums it all up.

  12. Alright, good note. I still think it'd be awkward to have to argue that because our pensions crisis has gotten SO bad, we need to amend the city code to take pledged monies OUT of the pension fund. I really am starting to worry for the damage we are collectively imprinting on the neural pathways of our political class.

  13. I've been assuming (and I thought I read something to the effect) that the City would have to provide some sort of agreement to back the pledged revenues on its own credit. That way even if the parking tax revenues were redirected or disappeared, the City would still be obligated to make the promised payments.

  14. Yes, brianth, the city is on the hook. In the same way we would have been on the hook after getting raped by the JP Morganstahl lease. As soon as the ratio falls below 50% the full faith and credit of the taxpayers comes into play.

    What is your point?

  15. I understand the logic that leads one to think there will be some other 'contract', and I don't preclude the possibility some other instrument will exist in the end.. I just am not sure it would mean much. I think it would be a contract by the city with itself. The most binding thing is what is being put into code with the understanding that that is 'irrevocable'. I may get around to pointing out parts of city code that are just ignored these days.

    Maybe some document between city and PERC, although I would think PERC is not in the business of asking for anything like that. Unclear what it would mean if it specifies "parking tax" revenue as the source since to a degree city can't control that in the end. Like a revenue bond in terms of city's liability.

    I'm warming to this actually. Can't say we are not being creative.. every angle of this is unprecedented. Will give someone tomes to write about for years to come. We're like the prologue to a book on the public pension crisis.

    The word 'pledge' is actually most appropriate I think. Like a pledge to wqed.

    I doubt it's worth poking at, but that last statement by TT As soon as the ratio falls below 50% the full faith and credit of the taxpayers comes into play. I think is irrelevant kind of. Come midnight the 50 percent threshold becomes OBE. Nothing kicks in below 50 in the future, all that matters is where they think they are at midnight. In reality, everything is coming from the full faith of the entity known as the city of Pittsburgh.

  16. Speaking of irrevocable.. I can't quite get some of these numbers to add up, which is only to say I am guessing the fund in the nature of irrevocable trust is indeed in play in all of this.


    Has the city, or will the city do anything concrete and transfer all or some of that like to the pension fund by midnight? No need to 'pledge' that, real money is there now. Therein might lie the tale.

  17. Chris (and anyone else): Do you have any analysis of what the investment managers for the pension funds did? Everyone took a hit in 2008, but was the fund especially exposed to complex derivatives or other "alternative investments"? Any read on who should take some blame, if so?

  18. I think the current fund managers have been working to divest the fund of illiquid assets from the time of the previous fund managers.. but outside of that and for the current returns, I think they are on par with market.. and the portfolio much more vanilla. I've also addressed the odd story of the attempt to hedge all the risk in the pension fund through the fall. Search for "mercer" on NS if you want more on that.

  19. I really have no idea how all this is actually papered--I'm just reading the summaries in the media and speculating. If there actually is no binding agreement between the City and an outside party guaranteeing the payments, then great! I would be a bit surprised the state would go for that, but I think Bram's speculation on that dynamic may be correct (i.e., the City may have called a bluff).

    The Truth,

    I'm actually not sure what point you are trying to make. But as I have long noted, under the lease the parking operator would be exposed to the risk of a future revenue shortfall, and by refusing to do the lease the City will continue to be exposed to that risk.

    But that is about the revenue from parking fees, and the City would retain revenue from parking taxes under the lease as well. What this plan does--I think--is require the City to guarantee a payment of some of those parking tax revenues to the pension. In that sense the City is actually increasing its exposure to the risk associated with future parking demand shortfalls--the opposite of what I would personally suggest it should be doing.

  20. If there actually is no binding agreement between the City and an outside party guaranteeing the payments, then great!

    Unless they're going to summon a demon, I don't see how they could get a binding guarantee with this kind of time frame. [Insert Zober joke here.]

  21. I'm sure there is a form you can download off the Internet.

    And there is always the pen-and-cocktail-napkin approach.

  22. But as I have long noted, under the lease the parking operator would be exposed to the risk of a future revenue shortfall,


    In exchange for taking on the low risk of a parking revenue shortfall, the *parking operator* would have been highly rewarded.

    With the current plan, the city will assume the risk, and most likely will be rewarded for it for the next 40-50 years.

  23. CB said....Nothing kicks in below 50 in the future, all that matters is where they think they are at midnight. In reality, everything is coming from the full faith of the entity known as the city of Pittsburgh.

    Nothing kicks in below 50 in the future? I think you would have to check with the state legislature two years down the road before you can be certain about that statement.

  24. new law is always possible.. I had also thought the 50% threshold was perpetual in a sense and would catch folks in the future, but apparently 44 isn't worded that way. This is a one shot deal it seems. For now of course.

    If that isnt the case, then none of this matters for another reason altogether. The point about midnight tonight being important is that is the last conceivable point you can still reference the 1/1/2009 liability value. If this all gets redone with new values, then the 1/1/11 numbers are likely to be pretty bad for the city.. certainly not better than where they were the nanosecond before midnight.

    Does Bram have Mike Tuzai on speed dial yet? maybe he can get some answers?

  25. I don't think the risk of a severe drop in parking demand in the next 40-50 years is trivial.

    In any event, if only someone had thought to hire a financial analyst to evaluate the risk-adjusted present value of the expected revenue stream. If someone had done that, we could compare that number with the lease bid and get an independent assessment of whether it was a fair deal.

    Oh well.

  26. All you guys really have to know is that:
    Luke is a liar and a thief (not to mention an amoral creep who likes to chase skirts). He also starts and stops with wheeler dealer operatives John Verbanac, Charlie Zappala, and republican money man, Bill Liberman.

    Corporate creeps like J.P. Morgan Chase, Morgan Stanley, Scott Balice, K&L Gates, and LAZ Parking plus the local scumbags who were going to make a fat payday/retirement fund contribution - won't.

    BrianTH: they (the Council) did do that financial analysis ya yapper. Jeez! All the F--'n goober experts are out in force on the Comet for this one.

    Send a thank you note to the City Council members who had the termidity to stop the BS fire sale of public assets, put Luke in his place, out-smarted the Repub legislators who gave PGH another hoop to jump through and siezed the day by working a workable deal that involved no paydays to a bunch of apolitical money guys.

    Luke truly has no clothes. Ask Dan Onorato.