The 2009 Budget: Final Action (Conclusion)

Finance chair Bill Peduto opened discussion of the proposed controversial debt fund by noting that the $45 million had already been transferred from the City's fund balance to the Controller's office via "some mechanism or official component".

Speaking of the forecast in the budget document, Peduto volunteered for us that "this future forecast may change for the year".

He acknowledged that some are framing the central debate as one of "flexibility vs. reassurance", but warned that "a budget is a budget" and better suited toward providing candor and clarity than to leaving options on the table, whilst actually writing off obligations indicated elsewhere in said budget.

Darlene Harris and Tonya Payne raised only procedural questions throughout this portion, the latter yielding her time to colleague Jim Motznik. Bruce Kraus was in attendance but silent. What follows is a paraphrased representation of several rounds of discussion.

##

"There is before us a flawed budget", Patrick Dowd declared, which contains "an incredible lack of specificity with one of the most important strategic decisions before us."

Dowd pointed out that he'd been having "quiet conversations" with the administration since "early October" -- to defend himself in advance against charges of playing politics. He avowed that he went public only after all other options were completely exhausted.

Of the ICA's plan for how this $45 million is to be invested, he said, and turned into $51 million in savings, "those documents are in draft form". He then pointed out for the public, "none of us have seen them."

"Ask an accountant", he implored us, "ask the City's accountant" whether what is being done is proper or advisable.

In addition, Dowd theorized for us that "if we were to see an agreement with the ICA that extends beyond 2011," that that would amount to "oversight through a backdoor mechanism."

##

Jim Motznik then delivered his address in opposition to all that; he said after seven years on Council he was intimately familiar with political grandstanding, and "that's exactly what this is."

Recalling Dowd's statement during the preliminary vote, Motznik said "Shame on the Mayor? Shame on Councilman Dowd" for playing politics with the city's budget. He also delivered his line about how based on this budget and its forecasts, Mayor Ravenstahl would be deserving of "a big fat bonus" were he in charge of a private company instead of a city.

Ricky Burgess sounded cautious to the point of nervousness throughout the proceedings. "Working together has to be the flavor -- the statement of the day."

Again and again, Burgess insisted that the implications of that which Council was debating will be addressed as part of the new Act 47 Five-Year Plan, which he was proud to have successfully convinced his colleagues to push forward to a March deadline.

Burgess sounded as though he was claiming to personally have some special influence or credibility with the ICA and with the Act 47 team -- and was pleading with the rest of Council to do nothing which would upset the apple cart or sour the delicate negotiations he was trying to orchestrate.

Burgess did offer that as part of the amended Five-Year Plan, he personally wanted to see all gaming revenue placed directly into the pension fund.

Doug Shields declared his intention to vote for the budget, but did so about as grudgingly as possible. He termed the executive decision to transfer the $45 million prior to the vote to be "illegal, bad form, and bad faith."

"I don't understand how money can be moved unilaterally," he said. "I'm not prepared to accept that at all."

Tangentially on the topic of the administration's management practices, Shields mentioned a report circulating about the performance of the Bureau of Building Inspection. "It hurts to read that report".

Nonetheless, Shields said the ICA made it "very clear" that the intent of the fund is to pay off the debt, and "they did choose a defeasement vehicle". Though complaining that it wasn't made clear to the Council that that's what was going on, he had no particular objection to money going toward the debt in lieu of the pensions.

"Because that's just too big of an apple to take a bite out of," Shields said of the pensions. On the topic of sharing such information in an orderly fashion before it excites controversy, "Pittsburgh deserves to know where the endgame is on this."

##

Dowd, reiterating that his concerns in this case are not those of technicalities and process but rather of the highest order -- that of safeguarding the City's big attempt to confront its pressing financial challenges -- moved that a letter received from the ICA be included into the budget itself.

That letter of intent for what is to be done with the $45 million fund, Dowd said, is all that the City has in the way of a game plan, and as such ought to be included as an appendix to the budget, in order to keep everybody focused and honest. Without that incomplete sketch as guidance at least, he said, the mayor and the ICA have no justification for expecting $51 million of debt to be addressed -- and for writing it out of the forecasts today.

This motion caused a great deal of confusion, partially because Dowd had apparently written an alternate proposal on another piece of paper. There was much eyebrow-raising and clarifying as to the existence of this other document.

Burgess countered that including some letter into a budget sets an awkward and potentially dangerous precedent. Pretty soon, he said, the Council could be festooning budgets and other documents with all sorts of extraneous materials, confusing legislative intent. Dowd's motion failed 2-6, with Peduto joining.

At length Peduto weighed in on the budget as a whole, stating that what was transpiring today reminded him of what had transpired with one of Mayor Murphy's budgets. Back then, Murphy asked that something not entirely sensible or logical by accounting practices should be inserted into the original Act 47 recovery plan. Murphy had plead the Council take a "leap of faith" in him and in the recovery teams.

Peduto said that in retrospect, it was the wrong decision at the time, and would be the wrong decision today.

Nonetheless, the mayor's budget passed 6-2, with Dowd and Peduto voting no as they did during preliminary votes. Peduto exercised the Finance Chair's privilege of presenting his own budget forecast to his colleagues and to the city, which he did by way of a PowerPoint presentation. His forecasts showed the city's police pension fund on a trajectory to run dry in 2011, which city Finance Director Scott Kunka later disputed. In addition, Peduto presented a list of structural changes which should be made to get us out of this situation, including a state-wide restructuring of pension funds and securing the ability to tax hospitals and certain other mega non-profits.

This last proposal earned significant acclaim from Comet senior political analyst Morton Reichbaum.

"I still think that hospitals should pay property taxes," said Reichbaum. "There's no reason not for them to pay property taxes. They make so much damn money."

"Billions of dollars!" Reichbaum emphasized. "Between UPMC and Highmark, billions and billions of dollars!"

The 2009 Budget: Final Action*

The meeting began with the Pledge of Allegiance, led by John Sukernek, age 5 1/2.

"... one nation, under God, indivisible, with liberty and justice for all."

That seemed to be his favorite part.

##

Proclamations were presented by Doug Shields to Charlie McCollester and the gang at The Point of Pittsburgh project; by Tonya Payne to salvage artist -slash- community champion Jorge' Meyers; by Bill Peduto to Rabbi Daniel Schiff; and submitted by Ricky Burgess to Jack and Jill of America in Pittsburgh; and by Darlene Harris in formal remembrance of Catherine Baker Knoll. All five passed by unanimous consent.

The first one came replete with a thirty-foot banner and an original musical performance by a solo guitarist.

Chorus:

"Happy birthday to Pittsburgh
Twohundredand fifty years old..."

Verses were assigned to Pittsburgh's many military, labor and civil rights struggles that are told through The Point of Pittsburgh project, as well as verses for the Steelers various different eras of dominance, and then verses and more verses. It was all beginning to smell like an elaborate filibuster of the mayor's budget, until our anonymous folk hero signaled that he was in on the joke.

At length, he brought his epic ballad to a rousing conclusion and exhorted the Council, "Don't forget the workin' man."

##

During public comments, we opted to do some laundry.

Upon returning, a speaker (Kenneth Miller?) was describing to us all the progress being made in meetings with public officials, including Darlene Harris among others, as to how our city's sports teams can leverage their licensing agreements to combat the violation of child labor abuses and reverse the proliferation of sweat shops around the world.

##

Down to business.

First came a "technical amendment" changing the name of one line-item from General Services to Finance, which also involved a shift from $37 million to $45 million. This was approved by unanimous consent.

Second came a decision by Jim Motznik to repeal his amendment again seeking to increase the pay of the city's Store Manager, Department of Public Works, by roughly 20%. Motznik said he was acknowledging pressure under certain laws of state oversight, but has received assurances from the administration and others that pay equity between persons of similar job descriptions will be addressed in what has become known as the Race and Gender Pay Equity Study.

Third there was a raft several amendments -- one I believe for uploading Council meetings on the web ($56,000 transferred from fuel costs), another for legal fees incurred by the Lamar Four at the hands of a private attorney ($4,800 out of the Law Department's pie-share), and then maybe something else to make the Lamar Four thing not stand out quite so much. * UPDATE: I think it was Burgess's proposition to bump forward completion of the new five-year plan from June to March.

Patrick Dowd voted against the city paying the legal fees. Aside from that single objection, it was ayes all around.

THEN they all got to discussing the swift allocation of $45 million from the general fund to "something in the nature of an irrevocable fund for the purposes of paying down debt" in lieu of the pensions shortfall.

Defeasement: Shake the Tree, Gather the Nuts

Chris Briem, one of Pittsburgh's foremost economists, throws a glass of cold water on the campfire that is becoming the Great Defeasement Debacle.

Eventually:

The current yield curve for government T Bills and bonds goes from 0-2.5% for maturities out to 10 years. For maturities out to 5 years the maxium yield is under 1.6%. At the low end, you can't really defease any debt these days. (Null Space)

So it appears that our Libertad, Egatitad, Defeasitad manifesto may not have been exactly the thing. We were conflating several issues, some of which being Pittsburgh's predilection to incur debt to pay off other debt, to over-speculate in the market, and to conduct plain old accounting gimmicks like these.

This may have been the most harmless example of its breed: a little accounting white lie. You would think that if Patrick Dowd chose to make a move here -- Shame on the mayor! Shame on the ICA! -- he would have done so supported by a ton of research and a certain degree of necessity. He may yet secure us our "clarity" as to how exactly these funds will be spent -- but he shook the hive pretty hard with little at stake, if in fact we can't profitably defease our bonds now even if we tried.

What was revealed were several artifices concerning our budget -- one being that our five-year outlook is "balanced" or "alright" in any real way. The best we can say is that the ICA approved it, and the ICA is after all only as much good as the State Legislature. (Do what you will with that.)

Another:

As Pittsburgh firefighters union chief Joe King left a news conference yesterday, he turned to Mayor Luke Ravenstahl and said, "If you hide money, I'm going to find it." (P-G, Rich Lord)

Well, that doesn't smell like Team Spirit!

Almost all of the unions representing city workers will get new contracts next year, and the two biggest -- the International Association of Fire Fighters and the Fraternal Order of Police -- can take the city to binding arbitration.

Even if Mayor Ravenstahl and the ICA are "hiding money" -- even if they are setting aside $35 million or so (??) and renaming it and writing it out of the budget (this is how you get into trouble, people!) -- do consider that we're all making sacrifices.

"We're not here to bankrupt the city with wages and benefits," [Fraternal Order of Police President Dan] O'Hara said. "However, there is a real concern about what this police force is going to look like if wages don't keep pace with other communities."

Unfortunately, other communities aren't in as bad a shape as we, are they? Think about what the Port Authority just went through. "We need to do more with less" is unfortunately a gross reality across the nation, much less Southwestern Pennsylvania, much less Pittsburgh.

I'm not yet saying we need to make cuts. I'm just saying we skip "binding arbitration" on the stuff to which we can come to an amicable accord.

##

Now, back to the actual economist. He was intrigued by the very notion of going to great lengths to set up this "lockbox" or "non-lockbox" to pay debt when it comes due:

First off, why was the plan shifted from paying down pension funds to paying down debt? There would be no issue at all right now if the surplus in question was put into the pension fund where it could not be extracted. The city's debt level has not changed from its planned trajectory in the last year, yet the pension fund has been hard hit by the financial markets. You would think that the pension fund is far more in need of shoring up right now. (ibid.)

Pause for effect.

I can only speculate the reasons for the shift, but suspect the mayor's budget reflects some of the preferences of the ICA.

Pause for effect.

Without rambling more, I think the whole issue comes down to some key legal questions that I addressed when musing on the ongoing bankruptcy proceedings in Vallejo California. If you want more see what I said in Why Vallejo Matters.

Bankruptcy proceedings? If a city goes through with a bankruptcy, I suppose that would relieve it of the obligation of owing money both to its pensioners and creditors.

If the city pays off its creditors on Wall Street in advance and lets the pension fund suffer, one might have difficulty winning reelection. Several advancing columns of current and former employees would not be ideal. (Nonetheless, it may be a good time to buy some AFLAC.)

Yet if the city takes care of its pensioners first and lets its creditors suffer instead, one may find one's bankruptcy judge unwilling to grant one the bankruptcy. "Try raising taxes on all those people who are getting pensions", she'll say ... and that affects everybody and everything. Meanwhile, nobody on Wall Street is doing business with us anymore. A slow and painful death.

So can the former be what is being perpetrated upon us ... real quiet-like?

I've been calling for Bankruptcy for years now. This forum visits that subject periodically and the majority of contributors say "NO" it'll be the end of Pittsburgh.But now as the nation and the world slips into the grips of a serious recession or maybe even a depression, cities like Pittsburgh, already fiscally distressed, are on the edge of the abyss. File now; be first.

smittyfromtheflats | Homepage | 12.14.08 - 7:16 pm | #

Be first indeed. This gravy train may not last forever. For once Pittsburgh may be ahead of the curve, since we are in an advanced state of acceptance that we're behind the 8-ball.

Unless bankruptcy is somehow grossly immoral. We might as well get the public conversation out of the way early -- for this will also help those who would be impacted to prepare and make arrangements. Would bankruptcy somehow cheapen or demean us?

If it can be conducted in an orderly manner, and without shoving or biting -- it sure is tempting.

Thursday: Patrick Dowd is melting down.

Can anyone dispute that? (Burgh Report)

Our own general impression is...

1) Pittsburgh is fully able to create a truly irrevocable trust fund in which we deposit money to pay off future bond debt ... thereby presently decreasing the amount of interest we pay and the amount we will be asked to pay in coming years. Because bond holders like that.

2) the City instead is going to put it under a bed of sorts and promise to pay down debt with it in coming years.

3) the City has already openly mulled investing that exact bed-money in other stuff, including high-yield bonds from our own Water Authority (think rate-payers)...

4) the City has long shown a penchant for investing too aggressively, or taking out loans to pay other loans (basically, anything the right finance whiz needs to sell us)...

5) upon Dowd's inquisitions, the ICA Board acted with the mayor late during the last evening before the budget vote to just take that money and stuff it under the magic bed of doing several things at once anyway...

6) yet the mayor's budget still shows numbers as though we are doing #1: Start paying the #$%$& debt already right now. And it just so happens to work out so that things look good on paper through 2013.

So yeah. We get it. The interesting question is why are they doing this to us? That will take a longer post.

The question I would ask if I were you is, "Hey Patrick! Why the meltdown?"

Or heck, you could try asking Bill.

##

Mainstream coverage of all that jazz is here and ... oh ho ho!! Look at this!

Hey, if Our Firemen say they need it, and they came by it in a grant, that's just fantastic. (Trib, Jeremy Boren)

But I thought we were the taxingest, spendingest city and region in All Mehiko! I wonder if that's what the rightists like to tell all the rubes... (Trib, Brian Bowling*)

Something about charities getting together to help out needy non-profits makes our head spin ... but once again, the Pittsburgh Foundation, the United Way, the Hillman Foundation and others are to be commended. If it's not too far removed from your sphere of activity, put on some benefit concerts -- you already have a great name. (P-G, Timothy McNulty)

I'd be lying if I said the ones who seek me out for an interview don't get special treatment. (P-G, Team Effort)

This column started out really annoying, but then it took a turn and got really good -- and then took another turn and got all sad! And then a little inspiring. But mostly sad! But oh wait ... are we only talking Thursdays? Suburban Living? We get to keep Viewpoint? We can totally deal with that. (P-G, Ruth Ann Daily)