Friday, October 15, 2010

PMRS: City needs $220 million to $300 Million to get to 50% Funding.

As its parking lease deal lies peacefully in a coma, Pittsburgh's path to achieving 50% municipal pensions funding levels may be getting steeper -- at least if it feels a desire to get there by year's end.

The only other really salient feature of yesterday's Council meeting in Pittsburgh not already mentioned below or to the right was when PMRS Secretary James Allen indicated that the city's pensions might be $220 million short "at the low end" or up to $300 million short "at the high end" from 50% funding levels -- depending upon how actuarial data just sped to PMRS headquarters in Harrisburg turns out.

$220 million is the figure which to date has been widely reported and referenced when dealing with satisfying the requirements of Act 44.

"The Legislature saw a train wreck coming with the Jan 1, 2009 numbers," Allen said, and it was thereby motivated to pass the Act last autumn -- which requires that Pittsburgh's fund management be handed over to PMRS if it does achieve 50% funding by Dec 31, 2010. Evidently the Legislature did not see those numbers definitively, yet rather intuited a general "train wreck" sense of them at the time.

Allen said the actuarial calculations will be completed "within three weeks". Three weeks from the date of that statement will be Thursday, November 4.

Mayor Ravenstahl has said that in order for the lease transaction to be completed by the end of the year and the funds deposited, City Council would have to vote to approve it by the end of October. The $452 million lease and plan would be able to meet the worst-case $300 million shortfall scenario, though only with a less-than-anticipated $60 million cushion to allocate as the city chooses.

At this moment the lease has one declared affirmate vote (Councilman Burgess), two other fairly likely affirmative votes which abstained during preliminaries due to a dearth of information on the overall pensions situation (Council members Lavelle and Smith) and six presently pledged to vote against.

On Tuesday, Council members Dowd, Harris and Rudiak advanced the framework of an alternative plan to reach 50% funding by the end of the year which entails a bond issue, to be backed by parking rate increases more modest than under the lease. The bond would be issued either through the City or the city's Parking Authority, though each faces its own hurdles. It is not known yet to what degree a "high-end" shortfall figure like $300 million would impact the workability of that plan-in-progress, which also has enjoyed the support of city Controller Michael Lamb.

Councilman Peduto has been most vocal in recommending that the City eschew all attempts at hustling to reach 50% pensions funding by the end of the year, and rather accept fund management by PMRS. Councilman Dowd expressed a hesitancy to do that at yesterday's meeting, citing the fact that Pittsburgh itself does not have any direct representation on PMRS's board -- though that is something "which might be negotiated in the future."

Mayor Ravenstahl returns from a trip to Shanghai, China and Seoul, S. Korea this weekend.

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.

Wednesday, October 13, 2010

The Artist: Christopher Cross

The song: Arthur's Theme

Cheeseball Maneuver on Pensions Succeeds

Preliminary Vote to Reject Lease Deal Early Enables Final Action on Tuesday 10/19.

Yesterday, a shiny new pensions plan was introduced -- well, not terribly shiny, because we don't actually know what's in it yet (like how much needs to be borrowed, for how many years, what will be the interest, which parking facilities' prices will go up and by how much and why those and how under this framework are we to avoid the same problem with PMRS takeovers for lack of funding in the near-term future).

And the Council members who introduced it 24 hours ago chanted, "The lease deal is dead! The lease deal is dead!," with the fervent insistence of Dorothy repeating, "There's no place like home! There's no place like home!" in a bid to get the media to repeat it and make it closer to being so -- not to mention make the deal's stakeholders panicky and discouraged. This along with folksy arguments about the need to "clear brush" and "clean workbenches" and whatnot.

Am I wrong about any of that?

So they concocted this minute blitzkrieg not to pass their own plan (they're not remotely ready for that yet) but to get rid of the Mayor's plan -- which the public, at their righteous insistence, has been pouring over for months and months -- before the Mayor and the public can spend even 48 hours really looking into their own plan.

So is their new plan any good? Why are they acting so very much like they're afraid that the lease deal will start looking better and better once we find out about this new thing, and about the real economic facts surrounding everyone's pension plans? Surprise surprise, during today's discussion everyone talked a lot more about what's wrong with the parking lease than anything substantive about the "Council-Lamb" scrape-and-borrow approach.

Pretty gangster, guys. Pretty old-school. Not exactly good govern-minty at all. All I'm saying.

REMINDER: What we had forgotten to mention yesterday was this: today's vote is only a preliminary vote. Even by voting against the infrastructure lease now and putting all our faith in freshly squeezed unicorn's milk, the deed would need to be repeated on Tuesday -- and lots of things could happen. For example, the Mayor's office could return from China (like I said, pretty gangster you guys!), or the State could return with worse-than-hoped-for actuarial reports which would shake up the entire dynamic.

Tuesday, October 12, 2010

Lease May Die Tomorrow, Period. **

*-CLARIFYING UPDATE: The Lease is obviously in intensive care. Pronouncing it "dead" now is clear meta-gamesmanship, i.e. spin, because its opponents want it to appear dead before Pittsburgh gets a good hard look at its alternatives.

Council seems for now to have backed off killing it tomorrow, though it does retain that option. Patrick Dowd explicitly forwarded that intention at the table, and it received significant support. Only Doug Shields' words of caution (similar to what appears below) seemed to take some steam out of that push. Details in Comment #1.

At this hour, City Council is organizing to vote down Mayor Ravenstahl's pension funding scheme tomorrow during a committee meeting, without holding it for special meetings and showdown discussions with the other plans as many had anticipated. [Live streaming]

Now, let's set aside the fact that I've personally been a bit more than open-minded toward the $452 million deal with LAZ and JPMorgan. Presently, Pittsburgh is not yet in possession of the actuarial data which will actually tell us what is our current pension funding level; those numbers are being crunched as we speak. So we know we can have no details as to what a state takeover would involve under various scenarios, nor do we know how much money must be raised if we seek to avoid one. And if any details on the "Council-Controller" plan exist, they have yet to be released to the public.

So burning one tool at this stage -- the highest-yield tool most especially -- would seem distinctly premature. The possibility that Mayor Ravenstahl may literally still be in the air when tomorrow's vote takes place would make such a move especially notable.

TANGENTIAL ANALYSIS: If it goes down like that, I can tell you what lesson the Mayor will take away from this experience. "Never play around with 'transparency' when it comes to real business again, ever!" I know I'll feel embarrassed to ever demand that he be especially forthcoming with his plans.

MORE: P-G, Joe Smydo (who was paying attention before I tuned in.)

**-UPDATE II: Tweeted around 3:45 PM today, after the meeting and P-G news update:

"Working to find" an alternative ... "Hopeful" ... yeah, best to vote down the Lease deal as soon as you can. You guys need the fear of performing without a net!

Monday, October 11, 2010

The World is Round, so the Arguments are Circular

Instead of quietly meditating over the true meaning of Columbus Day with their families and loved ones, several members of Council are exploiting today's holiday in gross spectacles of financial and political strategery.

Ricky Burgess tossed a new concept onto the table: lease the parking spaces as read, plow the whole overage into the pension fund, and then have the state assume pensions management anyway. Getting involved with PMRS and Act 44 with higher pension funding levels at the outset would significantly mitigate the necessary cost increases.

This may be the most excruciatingly responsible plan long-term -- but it also makes the state takeover appear presently ascendant as the most likely outcome, and the parking lease appear a bit in jeopardy by comparison. And please note that calling this the most "responsible" plan does not make it remotely likely, as it serves up what some will consider to be the double indignity of sacrificing the City's grip over both functions at once.

Meanwhile, Bill Peduto held a press conference touting the merits of the state takeover via Act 44 even under the City's present, low-riding pension funding levels -- apparently without yet having received any details back from the state pursuant to that absolutely crucial information just delivered to it on Friday.

Mr. Peduto said the city could meet higher payments, whatever they may be, with increases in parking rates, permits and "five or six other small menu items." (P-G, Joe Smydo)

Also, I need to point this out, because I feel aspects of the spin are starting to resememble Reconnect the Historic Street Grid Between Downtown and the Hill proportions:

Mr. Peduto said there's no need to bring in a "middle man" such as the J.P. Morgan-LAZ partnership and give up the $2.4 billion in revenues that a council study estimated that the parking garages and meters will generate over the next 50 years. (ibid)

* - NUMBER ONE: Those $2.4 billion in "lost revenues" we keep hearing about will be substantially offset by these other things called "expenditures": including management, salaries & benefits, facilities maintenance, insurance etc. The City would be shedding its responsibility to provide those, meaning any suggestion of "sacrificing" a straight 2.4 big-big-big ones is somewhat daft. ** - NUMBER TWO: The $2.4 billion in projected gross revenue is what would occur if the City also set all rates exactly as high as under the lease. To date, those Councilors warning of a "sacrifice" of $2.4 billion are the same who most vocally decry the exorbitant (market-based) rates appearing in the lease. So after subtracting some revenue for continuing parking subsidies and ultimately more revenue for facilities maintenance, how much generated revenue is really being sacrificed? *** - NUMBER THREE: Even after that coarse arithmetic is accounted for, if you believe the glorious Pittsburgh Parking Authority can ever be constituted to actualize similar operational efficiencies to a privately run parking business, maybe the City should invest in owning some Quizno's and Bally's Total Fitness franchises, because apparently you think city government is capable of the shrewd, nimble, and at-times cutthroat management and tactics of the outside world.

*-CORRECTION: According to pages 23-28 of the FSG study, the garages and the meters combined may in fact generate net revenue (or in their words, "Free Cash Flow") of a hedged, approximate $2.35 billion. The Comet regrets the error and the accompanying sarcastic tone in Number One above. Numbers Two and Three still hold if we're suggesting sacrificed revenue under a lease deal, and implicitly, getting to enjoy anything like it under the alternatives.


None of which is to suggest that opting for the state takeover is a ridiculous idea. I just can't abide a crooked picture frame, or crooked picture framing.


Council President Darlene Harris has proposed that the city float a pension bond -- backed by parking rate increases -- to boost the pension fund. Mr. Lamb has floated his own plan that would require the parking authority to float a bond issue, also backed by parking rate increases, to help out the pension fund. (P-G, Joe Smydo)

These plans would have the City dodge a state takeover this year by borrowing just enough money (along with some real parking rate increases) to reach the necessary level of funding, without seeming to provide any potential for avoiding the same outcome in 2013.

City Controller Michael Lamb said details will be provided this week. (ibid)

If Mayor Ravenstahl had said something similar at this point, we would have merrily canceled for him his return flight from Shanghai.

The state takeover may well turn out to be more than acceptable; the big lease is not a bad deal if you are in to that kind of thing; and doing both together could potentially provide some hard-earned advantages as well. We've yet to learn of any similarly convincing reasons to pursue the Scrape and Borrow method, so logic dictates it's pretty close to being bounced from the bracket.

*-UPDATE: You know -- I should have known -- I could be speaking too soon. Logic may not dictate anything.

Pursuant to what was said at a public hearing this evening, the City could very well settle on an answer only to the narrow question "How do I get through the next couple of months?" ... one which involves inviting the Parking Authority to take on a great burden of debt in addition to the debt it already carries (which it may well refuse to do) or asking the City to do the same (which its Mayor has explicitly and frequently promised the voters to refuse to do) ... one which delays a state takeover through PMRS (which may not be so bad unless you personally enjoy exercising what would be PMRS's discretion to invest funds) but only for a couple years until the same specters of a state takeover are likely to arise again, that is unless parking rates are raised to about the same levels we are presently bemoaning (only in exchange for lesser and slower returns). And that money we scrape and borrow together will be immediately deposited into the sinking pension fund (a la Mayor Murphy in 1998) and invested on Wall Street -- which some warn darkly is unwise and dangerous as a part of the Mayor's plan -- but is just fine if it is gathered dearly from other sources.

All because, when you tear away the bunting, some members have a deep and abiding faith that the infrastructure lease must be a dirty pay-to-play swindle despite a comprehensive lack of evidence, and/or that keeping all things which are run by City government City-government run forever is always preferable even while the economic advantages of doing so are vanishing before our very eyes. In other words, CHANGE IS TERRIFYING.

MORE / AGAIN: P-G, Trib.