Wednesday, December 29, 2010

On Governing by Hearth Wisdom

Today once again, Mayor Ravenstahl is being fetched, clapped in irons and hauled before the Council, so that he might discuss with them -- oh I don't know, the forecast for Sunday's Winter Classic.

Quickly right now I simply have to share with you my favorite exchange from yesterday's meeting. I'm not trying to embarrass anyone with this selection, and I don't think that I am. It's just my favorite for so many reasons. It works as a very belated closing argument, or as Jerry Springer's Final Thought, or on so many other levels.

We join Councilman Bruce Kraus's second round of questions; he has arrayed before him Controller Michael Lamb, council Budget Director Bill Urbanic, city Finance Director Scott Kunka and city Assistant Finance Director Cathy Qureshi. Kraus and Kunka have been jawboning at each other, as you do...

Kraus: And Ms. Qureshi's chomping at the bit here, and I don't mean to be disrespectful of you -- we should have included you from the beginning. Because I value your opinion and you're here for a reason. And I'm going to formulate an opinion based on the four different versions that I'm hearing here today. But I damn well guarantee you my decisions going to be based on making sure our obligations are met to our pensioners, and we are going to meet those obligations. That is the sole focus of this conversation. That's what we're going to accomplish here today. No matter what. However, in terms of parking and pensions being tied together -- I didn't offer that up from day one. That clearly was the will of the Mayor's office. That was the wishes, that these be co-joined.

Kunka: That was something completely different though.

Kraus: Okay, but -- and clearly that's where we are six, eight, 10 months later now so. And I apologize, we'd like very much if you would, Cathy, to weigh in on this conversation and offer up your perspective.

Qureshi: Sure, um. If it [slightly inaudible] state takeover, I hear everybody saying that, but I certainly haven't heard anything from McAneny or anybody yet. If there was some statement this could work, that's a good thing. But there are some serious concerns about the liquidity of the fund -- and that's something that we should, you know, as we work toward, we should not forget that we have 300 years left of payments. We can't -- on paper we can get to $565 million or 50% funded, but our real money is still what it is. And so all the interest earnings are only going to be based on the real money -- and presumably the negative cash flow concerns will still all exist -- and we'll get less and less percent funded, and become less and less liquid.

Kraus: But what was virtually offered up to this Council for consideration did not solve the inherent problems with the pension system either...

Kunka: It did!

Kraus: If I may -- thank you. It didn't inherently solve the problems.

Qureshi: It didn't solve them, it came a lot closer. Put in several hundred million dollars, which you can get interest on...

Kraus: Listen, we're projecting about $287 million...

Qureshi: Not -- you can't get interest on it.

Kunka: It really is a paper transaction, it's not a real asset to the fund.

Kraus: Having said that, um. Um. What I am, uh (oh god) what I am charged with accomplishing here today, it is to avoid the state takeover. I don't believe the first plan helped to inherently solve what the pension problem was. And yet there's a strong will on this Council to make sure reform does take place. We don't have but 2 or 3 days, but I guarantee that's going to be a topic of this Council clearly in the next year, to ensure reform. But um, on the plus side, of this agreement as opposed to the lease agreement, is that: we do not see borrowing of money, we do not see us paying interest, and we do not see us losing physical assets. To investment bankers. On that alone -- we avert state takeover, we ensure our pension obligations to our pensioners, we ensure that public assets remain public, we incur no debt and interest. Somebody better convince me why that's not a viable plan and why I shouldn't be saying yes to that today. Sounds pretty good to me!

Urbanic: It -- it is a temporary solution. It is simply to avoid state takeover. As Mr. Kunka and Ms. Qureshi said, it does not solve that problem. Uh, however, regarding cash flow issues: if we put in approximately between, um, between employee contributions, $50 million; and additional revenue of approximately $10 million, you get in the 60's; um, we have approximately $300 million in the fund; if the fund earns a conservative 6% as it would in PMRS we should be able to receive about $20 million additional -- $18 to $20 million additional in interest payment; um, that is if conservatively, the market does okay next year, even with conservative investment, we should be able to at least float even, and not lose money in the fund.

And then Kunka took issue with the optimism of Urbanic's "rosy" assessment. And that's where we're at.

Pittsburgh's body politic has "advanced" to the point where we're mostly kneeling before each others' favored golden idols -- No new debt! No investment bankers! No state takeover! -- but somehow, that to which everybody pays lip service as being most important -- the health of the pensioners' retirement fund and the seriousness of our long-term commitment to it -- keeps winding up rather stubbornly in the back seat by comparison.


  1. "It's too late," said James McAneny, executive director of the Pennsylvania Public Employee Retirement Commission. "Even if they got $500 million next year, it wouldn't change the takeover, unless the General Assembly changes the law."

    Council turned down the cash to avoid state take over. Blame rests solely on their heads and their seats...

  2. the point about earning interest on what the lease payment would provide is curious. Anyone look up what interest rates are these days?

  3. What is City Council smoking? They gave up $452 million *upfront* cash with another $400m or so in capital improvements, plus all the new parking technology iPhone lovers will salivate over....

    and....because??? They hate the mayor? They hate themselves? They hate the City? They hate pensioners?

    Haters gonna hate... (apologies to Jeff Reed)

  4. Why are anti-council folks almost always completely anonymous? The whole social media thing works better if you at least create a consistent pseudonym. Just some unsolicited advice. No law against using a real name however.

    I would take Monk as an exception, except as much as I appreciate the poetry, it is hard to really parse where he stands a lot of the time.

  5. I will tell you why most anti council posters are usually anonymous: because in the world we live in everyone knows that Bill and gang are much more vindictive than the Mayor and Zober. Ironic, but true.

  6. Is it actually possible for any sort of deal to occur, or is this all about pretending to not give up and placing blame on who was "uncompromising"?

  7. I'd guess that most of the anonymous council critics are city employees/retirees. They probably do have more to worry about for that reason, but I don't think a pseud would be over-revealing and it would be easier for others.

  8. I'd watch out for Gilman then.. he might throw his copy of Robert's Rules at you.

    Overcome fear!

  9. Chris, I've always assumed the anonymous council haters are posting from the north side of the 5th floor.

  10. Well, I'm not anonymous. I wouldn't consider myself "anti-council" as a general proposition, but I did support the lease deal, and I think the opposition to the lease deal by the relevant members of Council is rightly subject to harsh criticism, on substance, tactics, and probably motivation.

    Oh, and the 30-year risk-free rate is about 4.5% these days.

  11. Chris - Interest rates aren't anything to write home about now, but aren't we talking 30 or 40 or 50 years of them? In another five we could be talking about inflation, right?

  12. Taking those two comments together then is good. If you really put cash into 30 year treasuries then you take on risk that when inflation comes, the underlying value of the bond will sink.

    If you hold out for those higher interest rates in the future, or even the opportunity to take advantage of them, then you will put your cash into some shorter term vechicle which at the shortest terms has interest rates of virtually zero. Bottom line, you can't have you cake and eat it as well.

    Best I can do in a few sentences.

    Seriously, if you are going to put pension cash into an interest rate vechicle you are probably talking about something shorter than 30 years. Of course, that can't be where you put it. 4.5% is less than 6% and less than 8% and certainly less than 8.75% than the pension board used as its assumed rate of return into perpetuity.

    I'll stand corrected on BrianTH, though I think the point is still generally valid..

    and the the interest rate issue ignores the little issue that inflation would also hit wages and future wages and thus the actuarial liability calculation which at the end of the day depends on the spread betweeen assumed wage increases (inflation) and assumed rate of return on the investment portfolio.

  13. And I can't speak for Quereshi, but when I say "interest" I actually was also thinking "return on investment".

  14. as per the new offer on the table, the use of commuter tax revenues, anyone who thinks shifting money from one city pot to another is going to solve this crisis is nuts!!!

  15. They are stabbing wildly now. All of these late attempts are well-intentioned, but far too late. Nonetheless, it is instructive to note who is trying and who is sitting back and simply watching.

    I'd like to ask - how exactly is devoting decades of future revenue from PPA rate increases to the pension fund somehow better than leasing the "asset" for the same decades AFTER reducing the fund debt by as much as $450 million? With the former, we sign away all parking revenue without gaining sight of the solution. With the latter, we address the deficit directly with a big cash infusion, we let the tenant pay for needed system upgrades, and we share in tenant revenue.

    I wish Mike Lamb would repackage the original lease deal (with the recent LAZ concessions) and propose it anew, I think Council would line up behind it simply because it wasn't coming from the administration. It is by far the closest thing we have to a solution.

  16. Minuteman,
    I dont think Lamb is a right wing republican so that's probably not gonna happen.

  17. My only point in noting long-term interest rates is that a lump of cash now is still worth more than an equal amount of cash spread out over the future. In other words, lots of people have been ignoring NPV calculations lately, but they do matter.

    I wasn't trying to opine on exactly how much cash the fund would really need now to have a sufficiently high probability of meeting its future obligations.