Saturday, August 20, 2011

The Three (3) City Money Problems

The administration and Council are haranguing each other about parking plans and pension problems. PittGirl has been drawn into the fray. Should we welcome you back to 2010?

Now would be a useful time to review the city's monetary gestalt, since the exciting conclusion to last year's "state takeover" story is fast approaching, and another nerve-wracking round of annual budget talks is right around the corner.

The point we'd most like to illustrate is this: "the city's budget woes" you'll be hearing about are actually threefold. Three. Different. Issues. Understanding that is the first step towards not coming across like a rube or an easy mark.


Problem Number One is that the pension fund could simply run dry by 2014.

Almost nothing can be found in terms of predicting the actual drop-dead date, except...

"Right now, there's only enough money in the fund to pay our obligations for the next three or four years," [Mayor Ravenstahl] said. (P-G, Smydo, Dec. 30 '10)


At that rate we are now exactly 6 years from a zero fund balance in the fund. Hopefully the market does not sustain its downward trend and the city will certainly be forced to increase contributions (that is a story unto itself) so that 6 years may be overly pessimistic, but things will be quite insufferable years before the funding ratio reaches absolute 0%. (Null Space, Aug. 15 '08)

Startling agreement, there.

Now, part of City Council's pension plan of last winter was the shifting of $45 million from a fund formerly earmarked for other sorts of debt into the pensions. Another part of it was pledging to divert an extra $13 million each year from the parking tax -- starting this year. Taken together, one might have expected those twin boosts to provide the fund with an extra year or two worth of breathing space.

However the market pointedly did not reverse its downward trend since fall of '08, or the conclusion of '10 for that matter. Besides which, the city's fund hasn't exactly always beaten or reached market performance -- we found out this year that in the 4th quarter of 2010 (when the market was actually strong) the city fund performed in the 96th percentile of American pension funds. Next, there are actually literally three separate Pittsburgh pension funds -- police, fire, and non-uniformed -- all at different levels. It only takes the weakest of those three bottoming-out to trigger consequences. Finally, even before a fund literally equals "zero dollars", it begins running into unavoidable problems with sustainability -- like how to pay associated fees, make worthwhile investments, and keep a straight face.

So let's go ahead and say those issues counterbalance last year's funding initiatives by Council.

Today, a person can walk around town saying our pension fund is fixing to run out in 2014, with their heads held high.


Problem Number Two is that the pension fund might be "taken over". We should learn that for a certainty by Halloween.

In September of 2009, Pennsylvania passed a stripped-down version of an Act requiring that city pension funds containing less than 50% of their total obligations would be dubbed "severely distressed". Local management of such severely distressed funds would have to shift to the Pennsylvania Municipal Retirement System -- a sort of co-op originally intended for much smaller townships, boroughs and counties. PMRS would then call the shots as far as how much cash Pittsburgh would be made to contribute to its pension fund, when it would be made to do so, and how those funds would be invested.

In terms of trivia, the initial version of the Act would also have frozen the benefits of employees in the distressed systems and allowed those local governments to switch to "defined contribution" or 401(k) style benefit plans, never mind collective bargaining agreements. These Walker-esque components -- perhaps the actual original point of the Act -- did not survive Labor's lobbying and a narrowly Democratic state House.

But for our purposes, the fateful change to the final edition was carved out for Pittsburgh alone, whose pensions were funded at something like 35%. We were granted a special extension and a New Years 2011 deadline to reach 50% before being made to surrender control to PMRS.

State lawmakers had been persuaded that Pittsburgh might fill the gap by executing Mayor Ravenstahl's proposed leasing of city parking garage and parking meter assets to a private consortium. But lo and behold or alas and alack, City Council rejected that grossly unpopular strategy, and instead executed its cocktail of financial shifts and pledges.

Did it work? We don't know yet. We were given a deadline of Sept. 1 to provide all the information necessary for state officials to make the calculation. Today is Aug. 20.

"Please give me this stuff in advance before we make ourselves nuts worrying about this," he said. "If we wait until Sept. 1, there's no way (the retirement system) can take over administration in two months." (Trib, Bill Vidonic)

Could he have been giving us a hint? PMRS doesn't really want to take over our pension fund management -- we are regarded as a huge headache. This was all the Legislature's idea, and a bastardized one at that. That's probably why a City Council I.O.U. over 30 years is even being considered as a present-day fund asset capable of counting towards 50%.

"I don't know why they did it without professional assistance, but apparently they did, and now I'm worried they didn't do it right," said James McAneny, head of the Public Employee Retirement Commission. "No one has bothered to notify us exactly what they did." (ibid)

That especially didn't comfort any of the players around here. In fact, it right shocked them, as McAneny's "crackling voice" on speakerphone during a Council meeting on Wednesday, Dec. 29 sure seemed to indicate otherwise. Perhaps there was then some nuance overlooked.

And finally, even if the pledge / transfer were done acceptably, there is not any ironclad guarantee that it, plus our existent pension fund, will reach the 50% threshold. Not until they do the calculating next month.


Now, this is important. This may be the most important nuance to the blog post.

The relationship between Problem Number One (the Pension Problem) and Problem Number Two (the "State Takeover" Problem) is roughly the same as the relationship between the nation's 9% unemployment and the nation's $1.3 trillion deficit.

That is to say, people seem to think there is a relationship where none such exists.

If Pittsburgh manages to dodge the state takeover, we're going to be facing the same day of reckoning in terms of no longer having cash on hand to meet our contract-laden financial obligations -- and there is a word for that state of affairs. In fact, the state would be likely to stick in its beak via different means even as such a thing unfolds.

Whereas if we do indeed get taken over, we'll be facing the exact same reckoning -- we'll just have a little less personal discretion as to how we twist in the wind, and for how many months we can resist voiding ourselves.

State Auditor General Jack Wagner hinted towards this non-relationship back in May with a football analogy. Yet confusing the two problems is still very easy and still has a certain political utility.


However and finally, the Pension Problem and the State Takeover Problem both impact Problem Number Three: the Budget Problem.

As we make these higher, more urgent pension payments and deal with several other challenges (bonded debt, the Lesser Depression, conservative ascendency), we progressively are and will be discovering new atmospheric layers of having no money left for running the city: for street paving, emergency equipment, civic improvements maintenance and the like.

We can isolate glimpses of this when city officials argue about how much money remains in the annual capital budget, or when federal grant money gets rescinded, or when we argue (we do this a lot) over the impact of possibly rolling back parking rate increases and the implementation of the Council's pensions strategy. It can also be sensed when you hit a pothole, dive into a public pool lacking any water, encounter a landslide or other emergency, get hit with a parking ticket, stare at the vacant crumbling rat-infested building / lot adjoining your own, or watch a moving truck pull up to your neighbor's house. In the near-term future, the same may even be noticeable as your taxes go up.

To populists, skeptics and the politically indifferent, this could be the only problem that actually matters.

However -- and this is a big "however" -- the facts surrounding how exactly Problems Number One and Two have, are and will impact Problem Number Three will always be strenuously difficult to ascertain.

Strike that. Prepare for an era of wince-inducing postmodern politics. Facts regarding how our concrete pensions shortfall and our concrete responses to it are affecting our concrete city may not objectively exist.

We know there is a relationship, but -- did this, that, or the other thing fail to materialize because of pension problems, or because somebody would rather it not? Was it because of something Council did, or because of something the Mayor didn't do? Was it all really because of the mean old State and its stupid rules and gross Republicans? Or is it because of all that government waste? And what or whom is that waste?

Does the city Parking Authority's decision not to fork over $8 million to the City -- as is called for in the 2011 budget -- blow an $8 million hole in that budget? Are you sure? Even if it does, would that mean there's going to be $8 million less City surrounding us? How could you tell?

We have no advice yet for navigating this thicket.

Our instinct is to focus most of our attention on Problem Number One. Mathematics is the language of nature, and zero is an eigenvector of a Hamiltonian. You have to cling to something in this crazy workaday world.

Did you find this post valuable? If so, then please consider voting for the Pittsburgh Comet (again) today in the Most Valuable Blogger thing.


  1. Nothing or a double helping with you.

  2. The only thing I'm sure of is that Rev Ricky will say "I told you so"
    He had it all figured out,carry the Mayors water and get a steady revenue stream for his district,get re election help and never suffer from parking rate issues as the other districts have. It was always a win-win for Rev.CDBG Burgess.

  3. Here is the problem from 30,000 feet. I am positive the "blogosphere" will attack me for this, partly because it is the truth. None of our City councilors, nor the Mayor for that part, have any clue how to fix the problem. The Mayor, however, does have some smart financial people that sometimes get to advise him. Council, on the other hand, caters to Pgh United and a few old ladies in the East End that have absolutely no experience or understanding of finances or how markets work. It doesn't matter if Warren Buffet swooped in and gave the Mayor a plan on fixing the City's problems because Bill and Doug would reject the plan and Natalia would support them. We are stuck in a groundhog day cycle of people that quite literally have never held a job in the private sector dictating the future of our city.

  4. Just like he believes it is job to run around Shadyside on Friday to tell people it is raining - Peduto believes his job is to run around Pittsburgh and tell people the finances are dismal.

  5. I believe there is still room on the South Side to build another Casino...

  6. Anon at 8:50 is the funniest thing I've read in a week (I'm going to call him Mr Leo). It's like a poorly read mayoral supporter tried to use the stupidest arguments Republicans have tried to use. Are you ready arguing that six months of punching a computer for UPS makes someone a business expert? And Mr. Leo seems to have missed the fact that previous mayors got plans past council. Murphy was able to get really stupid plans post council all the time.

    As for the East End, I don't think the mayor's problems come from the old ladies as much as they come from the still working, especially the new to town. In my experience, you can wander the whole of Squirrel Hill without finding someone who supports the mayor and is under sixty and is not directly making money from the city.

  7. I wonder if you can comment on the relationship between council and the parking authority. For instance, why did council include, as part of the pension plan, money from the parking authority that they couldn't compel them to hand over?

    Indeed, for all the talk at the time of 'keeping public assets public' it would appear that we simply don't have a parking authority that is very responsive to the public. They don't cooperate with the legislature and often seem to try and thwart its plans. Granted the proposal to do away with meter raises and extended enforcement has populist appeal, but those moves appear to have more to do with deflecting recent criticism aimed at the Mayor for his lackadaisical approach to governing. Note there has probably been as much outcry about the condition of the south side, but little effort is made toward changing that.

    If the bulk of the money from the parking authority never finds its way into the city budget and the citizens are charged sky high rates with laws enforced around the clock, how has any benefit been realized by keeping the asset public? If our legislature doesn't even have the ability to regulate the authority, in what sense was it 'public' to begin with?

  8. I thought it was only public in the sense that UPMC is not for profit. It's just a tax dodge, except in this case, the taxes being dodged are the taxes bond holders pay.

  9. SteelCityMud - My guess is there was a sentiment on Council that if payments from the Parking Authority were written-in to a balanced 2011 budget, the ICA approved that budget and the City passed it, then there would follow some sort of irresistible legal / financial / political / categorical imperative to make it so. Indeed that notion wasn't thoroughly enough examined. You could say City Council is hopelessly mired in modernism.

    When you talk about the Authority's lack of responsiveness to the public, I feel I must have missed the day that a mob ringed the GSTC demanding that the Authority courie funds about five blocks south. Of course the idea that the Authority should feel that way yet doesn't dovetails perfectly with one of my reasons for supporting the lease -- I never identified the Parking Authority with an adroit, anxious, significantly accountable institution to begin with.

    You do ask a good question: why then are parking rates going up even a nickel, if it's not going to be used for the pensions? But the answer probably will be that the garages need to be overhauled -- so we're probably going to see them overhauled. It would be too circular after all to claim we're raising rates in order to purchase newer meters capable of handling these new rates. Or am I the one stuck in modernity?

  10. Anon 7:08 am - Wondering if you have anything you can point to as far as a "steady revenue stream for his district" (that would be NEWS) or if you're just being a slandermonkey.

  11. the lack of foresight by city leaders past and present bring us to this quagmire. I find anon 8:50AM SCM on to something.The senior leadership has decades of council and school board experience. Yet you don't see any of that @ council sessions. To much gotcha being played!

  12. "In my experience, you can wander the whole of Squirrel Hill without finding someone who supports the mayor and is under sixty and is not directly making money from the city."

    If this is true (and it may well be)...then how sad a commentary it is regarding voter non-participation. Shame on the kvetchers who can't be bothered to vote in primaries and in general elections.

    If disgust for the mayor is really so widespread, then it is proven truly and fatally ineffectual over and over, because these people just don't get out and vote to reflect this disgust. They stay at home either because they just like bitching too much, or they just don't really care enough to try and make a difference. So, who really cares what they say about how the city should be run?

  13. It isn't entirely their fault. The rules for elections are designed to make it as unlikely as possible that younger people and new residents and those people less interested in politics will vote. The off-year elections and closed primaries* make it less likely that anybody with a life or a lack of partisan involvement will vote.

    *Not that closed primaries don't have their point when there is a general election with two plausible candidates.

  14. Not sure how to respond, other than to say "you get who you vote for", or alternatively, "you don't get who you don't vote for".

    Why would anyone in Ravenstahl's office regard a non-voting bloc as a target audience? Why should they? How can they, really?

    Citizen dissatisfaction that is not backed up by VOTING is nothing but pissing in the wind.

    I agree that there is a lot of unfocused dissatisfaction out there. Wake me up when someone grows a pair and rallies this group behind a mayoral challenger. Should be pretty easy, if everyone is walking around grumbling, right?

  15. I don't know that voting or not voting impacts anything. True it wasn't "voting" per se, but the last time we experienced widespread civic participation and activism around here we gave a hockey team $400 million and half a neighborhood. I think however we can slowly, patiently change the conversation even among the elites and power brokers from how to we should continue clinging to everything we think we must, to which things it no longer makes any sense to cling and are really now just anchors.

    If we really only have a couple years left (2014?!?!), the pretensions which made such powerful political sense since the 80's have got to be subject to the law of diminishing returns.

  16. Why would anyone in Ravenstahl's office regard a non-voting bloc as a target audience? Why should they? How can they, really?

    Because they're citizens of Pittsburgh, and therefore worthy of the same service, leadership, and representation as the people who did vote for him?

    Right there, in a nasty little nutshell, you have much of the problem in politics, from the local to the national level: if you didn't vote for me, or I don't think you might vote for me, or you can't help me in some way, then piss off.

    Great. Just great.

    Whether Ravenstahl likes it or not, he's the Mayor of East End progressive types. Whether Obama likes it or not, he's President of heartland Tea Party types. Pretending those non-target-audiences don't exist -- or worse, screwing and demonizing them because they won't deliver your next re-election -- is solid politics but pathetic governance.

  17. The 14th Ward, which covers a big chunk of the East End, consistently has the highest voter turnout percentage in the city.

  18. I don't want to take the steam out of your sidebar rant, Chad, but progressive East End types would have benefited from the Parking Lease Plan along with everyone else. My point was not that Ravenstahl would ignore those that don't vote for him (which he doesn't), rather that it's tough to assign much significance to the sort of statement made above - that there is a lot of discontent out there - when that discontent never amounts to a hill of beans on election day.

    Generally though, I agree with you - the partisan character of local governance has been on full display in this, and it's going to end up costing us all. It's tough not to conclude that Council opposed the Lease Plan in order to stick it to Luke, because they have failed to advance a plan that is any better. Peduto in particular has turned himself completely around here, at first scaring people with the specter of fee increases, and now clinging to fee increases as the only way out of this. One might be lured into concluding that he was rooting for the state to take over, or something...

    As for the 14th Ward sporting the best voter participation levels, that may be, but the level they win with is still a travesty - i.e. depressingly low.

  19. One might be lured into concluding that he was rooting for the state to take over, or something...

    Maybe he can't get straight figures on the pension hole either.

  20. I am confident that Pinkie Pie will show us the way out of this logical conundrum.

  21. It's good to know livejournal is still avoiding sanity.