Notes on Pensions / Parking Arrangement

Sale of parking could aid other projects (P-G, Joe Smydo)

Yes, the "$300 million" we've all been mentioning is only a practicable bare minimum. We all hope to, and expect to, earn more for the lease. From the article, it sounds as though most would prefer to plow any overage also into pensions.

Mayor releases revised parking lease proposal (P-G, Joe Smydo)

Congratulations, community! Now there probably won't be any overage to speak of.

Last but not least:



Article here: Bloomberg, Darrell Preston. It looks like Chicago's private parking operator is projected (somehow or another) to collect $11.6 billion in revenues over the 75 years of its lease, or an average $154 million per year -- with which it must also run that operation. Looks like Chicago's operator paid $1.15 billion for the concession on day one, or the equal of 7.5 years worth of projected revenue, that is 10% of the lease.

Here is the full context of the term "dubious" in the article:

The deal was “dubious” for Chicago, its Office of the Inspector General said last year, because the city’s chief financial officer, who negotiated the agreement, failed to calculate how much the system would be worth over 75 years. The present value of the contract was $2.13 billion, more than the $1.15 billion the city received, it said. (ibid)

So that city office claims the lease ought to have been worth about 18% of lease revenues up-front over its lifetime, instead of just 10%.

ASIDE: Chicago has an Office of the Inspector General?!? Sounds like some kind of Controller on Crack, or an Auditor Plus Attorney General. Do you suppose it's a full-time, serious operation?

Chicago just does things differently. It elects its City Clerk -- sound like fun?

Harris' Criticism Draws Criticism ... from Lamb

The post in which I credulously presented Dok Harris' take on city pension fund performance between 2005-2007 has been eliciting significant pushback, and more so since it was picked up by the P-G's political blog.

So I'll publish the gist of the criticism here, nice and prominent-like.

One notable e-mail came from City Controller Michael Lamb. Since it came from his office e-mail and was not prefaced the way almost all political e-mails I receive are prefaced ("BRAM THIS IS OFF THE RECORD!!! DON'T YOU DARE BLOG THIS!") I'll reproduce it for you:

I was forwarded your entry on this subject and I will follow-up with Mr. Harris but his pension analysis fails to acknowledge one key factor. In the years 2005-2007, the gain pointed to is not the investment performance. In fact, that number represents the performance of the fund after contributions and deductions. The annual cost of the pension system is about $80 Million. In 2005-2007 the city and the employees were contributing about $50 Million. That $30 Million shortfall was made up by investment performance.

In short, the fund did much better than Mr. Harris suggests.

Also, the $120 Million loss is actually a much smaller loss on a percentage basis than the market suffered. I know it’s a smaller loss (percentage wise) than I took on my IRA.

It should be noted that in 2007 we changed pension fund advisors. We have since lowered the expected actuarial return which requires the city to put more money in annually. We have also downsized the number of fund manager we are working with to hold down costs.

There is still a lot to do and the $200 Million infusion will not solve our problems but we actually have had a pretty good investment performance when compared to other public pension plans.

I feel like I should have caught that, teh maths thing.

And it's true in November of 2007, Mercer Investment Consulting did take over for Hirtle Callaghan & Co., which had been responsible since 1995 (P-G, Rich Lord). Personally I've heard this was an unpopular switch among some politically connected Downtowners.

We will see if Dok Harris -- who announced in June via Facebook that he re-registered as a Democrat and looks forward to voting in Lawrenceville -- decides to hit the ball back.

Additionally, and in response, I asked Michael Lamb on-the-record whether he believes such a $200 million or more (hopefully more!) infusion, though insufficient in itself, is still necessary to "solve our problems" -- and if so, where he thinks that infusion should come from; and if not, what alternate courses of action he believes Pittsburgh should take. I will let you know of his response.

*-UPDATE: Lamb responds-

The $200 Million is necessary to get the fund to 50% and avoid the state takeover. I have been supportive of avoiding the state takeover for many of the reasons Dok points out in his letter. I still believe the fund can reflect a 50% funded status by 12/31/2010 while keeping public assets public. Specific proposals on how to do that will be made public after the lease proposals are submitted.

Right, I forgot: only after the bids come in. Though I don't personally understand that -- if Pittsburgh advertises that it has some other workable options, would that not encourage higher bidding and better offers from potential lessors, so as to tempt us away from these alternatives?

**-RELATED: Councilwoman Rudiak offers amendments to the lease deal, which might suggest her mind is open to a lease deal (Trib, Adam Brandolph).

Community Meeting II on Electronic Signs & Billboards: Options and Categories

After "a two year saga", the Planning Department is winnowing down notions on regulating electronic signs.

The deadline for accepting public feedback via e-mail, snail mail and skywriting will be Sept. 1st, at which time experts will cloister themselves, draft a new law, and deliver it to the Planning Commission by the end of that month. That august body will be tasked with tweaking and approving it prior sending it to City Council and thence the Mayor.

Yesterday evening, staff from City Planning, together with its legal and scientific consultants, defined three (3) types of electronic signs to regulate differently: advertising electronic signs, non-advertising or "on-premise" electronic signs, and Major Public Destination Facility electronic signs.

For advertising electronic signs AKA digital billboards, one option is simply to ban them all in every city zoning district. The handful already in existence would become non-conforming uses, and then be regulated as to brightness, dwell time etc.

A second option on the table, nicknamed "Cap and Trade", would allow digital billboards almost wherever traditional billboards already exist -- but only if the applicant removes six times as much normal billboard face from the City. Essentially, this would legally enshrine the informal "6 for 36" deal which the City had kept with Lamar Advertising ever since a showdown during the Murphy administration. These will all be regulated for brightness et cetera.

The third and final option being considered for digital ads is to simply allow for unlimited electronic conversions of traditional billboards, and to allow for new ones almost wherever traditional billboards may already be permitted. The "almost" in both options 2 and 3 refer to extra prohibitions from historic districts, the Riverfront Overlay District, from "demanding driving environments" and from river views. Again, brightness and content regulations will apply.

For non-advertising, "on-premise" electronic signs such as business ID signs, our two options include: banning them entirely, or else allowing them anywhere electronic advertising billboards may dwell under Option 3 above.

Electronic Signs for Major Public Destination Facilities would constitute an exception to all categories and options above. These are presently defined as structures both "providing as its primary use cultural services, public assembly, and recreation and entertainment" and boasting either an annual "attendance" of at least 500,000 or a capacity to accommodate 10,000.

Major Public Destination Facilities would be permitted both one electronic sign and one video display each. Zoning, size and content restrictions are still being finalized, as perhaps are some definitions.

In addition, at the request of certain North Shore institutions, the city is "looking at" creating a "special signage district" in zoning districts DRA, DRB and DRC -- this being the North Shore.

A little more will be added as to how the discussion among residents and community and industry representatives proceeded. Nothing huge.

Do. Harris Serves Warning on Pension Efforts (*)

You guys remember F. Dok Harris, right? Ran for mayor?

Well, as attentive watchers of the Comet News sidebar already know, he penned an open letter to Mayor Ravenstahl regarding the proposed parking lease deal and on efforts to shore up the pension fund in general.

We'll leave style notes aside. Essentially, he highlights for us an important and under-discussed fact about our city's pension fund management -- and he makes some familiar and in my opinion hackneyed political arguments against the lease deal -- and he shakes them together vigorously, hoping they'll blend.

First the good point:

In the worst of financial markets the Fund lost over $120 million in a year. Unfortunately, in the best of markets, the Fund did not experience the high returns that it should. In fact, looking between the years of 2005 and 2007 (during the recent bull market), the value of the fund rose $1.8 million dollars -- or 0.4% of the Fund's balance of $373.6 Million. To put this in perspective, the S&P 500 had a 2-year change of 21.75% over the same two-year period. (Harris)

Harris goes on to illustrate how bad this is -- we'd have done 20 times better to put the money in a normal bank account or in no-risk U.S. Treasuries -- and he raises the nauseating prospect of what happens if our multi-hundred million dollar infusion from a lease (or from a bond, or from robbing a train) meets the same fate.

(*-UPDATE: This analysis is proving incomplete in a way which at least exaggerates any under-performance.)

Why did the fund do so poorly from '05 to '07? Anybody? Mayor Ravenstahl can't be blamed too much personally (the buck stopped at his desk for only the latter third of that span at best) but I wonder, if the problem was with the fund managers, has anyone been sacked? If my net worth remained flat while everyone else in my neighborhood grew a quarter, I'd be looking to sack somebody, or at least for a good explanation and then a describable course correction.

So, let's get going on that angle.

##

The other part of the cocktail is less novel, but I may as well use it here to jump off with my own take:

I would hope you are able to do a better job of explaining to the citizens of Pittsburgh exactly what the proposed lease means to them on a daily basis // We must, however, be completely transparent at how this transaction will affect the every day quality of life of Pittsburghers // The people of Pittsburgh should not be forced to pay $4.00 to spend an hour at a local store. Our local small business owners should not be punished for the city's malfeasance // Pittsburgh can, and must, avoid the problems that Chicago faced after a similar lease transaction took place. (ibid)

And so forth, with certain details.

Where to begin ... "the problems that Chicago faced", to the extent that there were any, stemmed from their lease being passed hurriedly and with almost no public or official scrutiny, let alone public warning and preparation; with Neolithic and noncompetitive processes for selecting consultants and operators; and with an unfortunately botched roll-out.

Whereas in Pittsburgh, we have been discussing this for almost two years, and at an extremely high if not compulsive intensity for the last few months; we all have the terms of the lease in hand, much to the Mayor's disadvantage (as its alternatives are either top secret, not-quite-existent, or receiving far less scrutiny); we have and are bidding out all work to the reasonable satisfaction of everyone reasonably possible; and hopefully we will have learned from Chicago's experience to get the technology right the first time.

Justified shock and outrage in Chicago aside, I would be interested to learn just how many small businesses therein have dried up like raisins in the sun since the city set market rates for parking. Has its downtown or neighborhood business districts experienced horrific shrinkage? Has the region emptied out? My impression is no.

Because these are not "punitive" rates, rather "market" rates.

For those for whom money is tight -- and that's most of us -- it's fairly easy to park on a side street and walk to a corner business. I've been doing this for years. Or if one has a job or an errand to run Downtown, one can take the bus. Or finally, it's annoying but not impossible to pay four bucks (or Downtown, four bucks more) to warehouse your big heavy gas-guzzling steel palanquin -- think of it as buying a retired police officer or firefighter or road crew worker a beer, in addition to your own three or four.

Nobody "deserves" to be punished for the city's past malfeasance -- but does that mean we must hide from our creditors? Will it "punish" small businesses any less to raise their property or wage taxes?

Parking rate hikes will only impact some people -- typically those resolved and capable of spending a bit of green anyway. And, happily, it impacts many who are driving in the first place because they "live in Pittsburgh" yet noticeably far away. Market parking rates will provide them at long last with the satisfaction of knowing that they are full-fledged contributors to their hometown.

In conclusion: business owners will complain because it is their job to scrape fiercely for their every slightest advantage. Yet we know that if they provide a quality product or service, they will live and thrive regardless. Let's those of us responsible for the whole city and its future demonstrate a little backbone.

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Electronic Billboard Legislation Discussed Tomorrow

Tomorrow will come a second public meeting to mull over regulations on digital billboards; details HERE.

A revised proposal by City Planning is HERE. It has been liberalized a bit since the last meeting; for example the "North Shore" is to become a "special signage district".

Find my impressions of that last meeting HERE. I think tomorrow is to be the last major, centralized community meeting before the Planning Department places its imprimatur on new ordinances and submits them to the Planning Commission for approval.

You can and should e-mail any thoughts you may have about the city's regulation of solid-state electronic digital billboards to Dan Sentz, the point-person for the issue over at City Planning, at Dan.Sentz@city.pittsburgh.pa.us. Probably should also cc' Planning director Noor Ismail at Noor.Ismail@city.pittsburgh.pa.us. City Planning says it takes this sort of feedback into account; I know it frequently references doing so.

I didn't head into the last meeting resolved to oppose all digital billboards, believe it or not. There are a couple existent in town already that do not particularly bother me. However, it sounds like if we allow them in some places under some conditions, we will constantly be arguing and litigating over sight lines and "nits" of luminosity and appropriate levels of discretion and a thousand other things. The consultants advised us we should seriously consider an outright ban -- and since we don't seriously gain by allowing these signs either, and potentially have much in the way of civil and aesthetic peace and property values to lose, I think we should take our consultants up on that suggestion and relax for the rest of our lives. That's just my opinion.

The Parking Space Solution: A New Situation

Pittsburgh's municipal pension funds are presently 29.6% funded, making it one of the very worst -- if not the single worst -- of all major and middling cities in the nation.

Distinction!

Roughly speaking and apropos of nothing, this came about due to an unwillingness to delegate sacrifices, a compulsion to cave under political pressure, and a special love of putting off 'til tomorrow what might be done today.

As a consequence of this growing absurdity, last year the Commonwealth of Pennsylvania was roused to assume the management of this city's public pension funds as part of statewide legislation that assumes control over all municipal funds that are urgently distressed at levels below 50% funding.

50% is still critical mind you, but not quite ROTFLMAO-worthy.

However, we the Pittsburghers, loathe to surrender local control (despite having ceded a great deal of it already under sharp duress in 2004) begged, pleaded and cajoled the Legislature into carving out an extension for us -- for Pittsburgh, the biggest basket-case of them all -- on the logic that we have a Plan, that we are closer than they all realize, and that we are about to monetize some cherished assets in an innovative fashion.

The taxation aspect of this Plan never materialized (we couldn't identify a single constituency capable of shouldering that burden, fancy that) but that measly $15 million line item was small-potatoes, operating-budget style money anyway. The parking space monetization was our main pitch. The legislators agreed it looked very promising, granted our special extension, and continued eagerly to look forward to it.

And so we spent our extension hiring consultants, working with brokers, and informing the public. And here we are.

We have various options. I think this is all of them. Some will probably be new to you.

##

1) Monetize the Parking Spaces.

PRO'S: Should net us over $320 million, thus avoiding a state pensions takeover, and retiring Parking Authority debt to boot. Does not relinquish control over a "core" city function essential to the people's health and welfare. Likely to generate additional future revenue through collateral monetization (advertising) when this is permissible under our zoning code. Allocates a significant portion of our financial burden to out-of-city commuters, a goal many have long sought. Should satisfy our partners, the Legislature and the oversight boards, thus enhancing our chances of petitioning these successfully in the future and very likely expediting our liberation from these bodies.

CON'S: The rates at garages and meters will increase, as the parking market allows. Local business communities, both Downtown and in several neighborhoods, will envision the destruction of their world and be sorely displeased with their representatives. In the neighborhoods, more people will feel coerced into parking two blocks or more off the main drag onto side streets, where there are no meters. Other people, particularly those headed Downtown, will feel compelled to take public transportation, requiring cash payments to the Port Authority. Somebody, somewhere is likely to make a profit. Luke Ravenstahl will have succeeded at something.

2) Take Out a Bond Issue.

PRO'S: Will generate at least $220 million, thus avoiding a state pensions takeover. Will not upset or in any way discomfort a single person. Does not relinquish political control over a non-core but nonetheless cherished public asset. Parking rates will not rise quite as much as the market will allow.

CON'S: Approximately $450 million will need to be repaid, over the course of 20 years. Parking rates will still rise greater than half as much as under a lease, in order to cope with this debt. In so budgeting, Pittsburgh incurs risk in the event that anything negatively impacts the parking market: rises in gas prices, a double-dip recession or worse, continued population loss, natural or man-made disasters.

Back to certainties: this new debt will significantly hinder our ability to issue other bonded debt for the purposes of repairing our already threadbare infrastructure -- which absolutely must happen soon -- or for other capital projects. Future residents of the City and region will regard us much as we do our own forebears, for having made the same decisions to pay-it-backward. Parallels with a certain refinancing scheme under Mayor Murphy which we now all employ as a cautionary tale will be too exact to ignore.

3) Make the State Delay Once Again.

Yes, as previously divined at the Comet, this argument is likely to make a concerted and exciting appearance!

PRO'S: To those who believe deep down inside that it is unavoidably time to pay the piper and monetize our parking spaces -- very possibly a majority -- this will enable them to be reelected first, which is awesome. Those who are less fundamentally exercised over Pittsburgh's hysterical 29.6% pensions funding level get to avoid being encumbered by it. Those who resent past state decision making, and the existence of the ICA in particular, get to rattle their legal sabers for a time in populist fervor. And all of the above, together with still others, get to enjoy the fruits of a noteworthy temporal victory over an at-times arrogant mayoral administration.

CON'S: The present lease deal, which has taken almost a full year to arrange, may wind up being scrapped before the outcome of the appeal-to-slash-showdown-with the Commonwealth becomes apparent. To the extent that it will be a legalistic showdown, these rarely go well for us; and to the extent that it will be a plaintive appeal, state officers will remember that we already begged and pleaded with them once precisely in order to arrange this lease deal. Meanwhile, the 29.6% funding level could slip even further, deepening the hole.

In addition, those resigned to executing a lease eventually -- only not before an election, and/or not one known as "Mayor Ravenstahl's plan" -- may encounter a different environment. In addition to a deeper hole to fill, infrastructure investors may not have the same confidence in a flaky city which took them down this selfsame road only to cop out at the precipice for a host of idiosyncratic reasons. On top of this, although it appears the economy and the credit markets have recovered from what might have been a true Depression, talk of a double-dip recession has become commonplace thanks to fundamentally insufficient Congressional stimulus and stubbornly weak job numbers. This double-dip would equally impair our ability either to monetize assets or issue debt.

In short: we know we now have a window to make gains against our fiscal difficulties one way or the other -- and we also have a lease deal already developed, the terms of which have been widely trumpeted over months, should we opt to go that route. We know relatively little about the future, and there are sound reasons not to play dice. Yet dice are always tempting when there is much -- politically -- to be gained.