Let's Get the Pit out of Pittsburgh!

Pittsburgh, once in significant fiscal distress, is now seeking removal from the state’s “distressed” status. Scott Kunka, the Three River city finance director, notes: “In 2004, we were on the verge of missing payroll and our bonds were junk…We have made systematic improvements, have gotten upgrades from the bond rating agencies, have balanced budgets and a large surplus, and have reduced our debt.” The city yesterday was scheduled to formally appeal to Pennsylvania’s Department of Community and Economic Development to remove its stigma. More importantly, the PFM Group, which serves as the city’s Act 47 coordinator, notes: “There’s a strong management team at City Hall on the budget side.” Pittsburgh has reduced its debt from $824 million in 2006, when Mayor Luke Ravenstahl took office, to $581 million, and expects to lower it to $490 million in 2014, according to Mr. Kunka. Over nine years, the mayor and city council have embraced changes required by the Act 47 plans in 2004 and in 2009, when the city updated its plan. It has reached labor agreements with eight of nine city unions and downsized municipal government by 25% from January 2000 to January 2012, scaling down some city services and putting out others for competing bids from private providers. Pittsburgh has also worked out shared-services agreements with neighboring communities.  The city and its recovery coordinators anticipate completely paying off existing debt by 2026, meeting best-practice standards. In addition, the city has lowered its debt as a percent of its operating budget from 24% to about 18%, and expects to lower the ratio to 14% by 2017 or 2018. Last January, Moody’s and S&P revised their outlooks to stable from negative after city officials visited the rating agencies in New York and pitched upgrades. Moody’s rates the city’s general obligation bonds A1, while Fitch Ratings and S&P assign A and BBB, respectively. The law firm also participating with oversight responsibilities of the Steel City under Act 47 has cited Pittsburgh’s structurally balanced operating budget with recurring revenues consistently outpacing expenditures: “After weathering a deep recession while preserving its operating balance and reserves, the financial outlook for the City of Pittsburgh is positive.” Fred Reddig of the state department of Community The hearing, rescheduled from last week after Hurricane Sandy hit the Northeast, will be at 3 p.m. in the City Council chambers. Fred Reddig, a DCED official and the head of the governor’s center of local government service, will preside. There is no statutory deadline for the decision, but the city could expect one by the end of November. Because of continued legacy employee costs, Pittsburgh will remain under the budget purview of the Intergovernmental Cooperation Authority, which oversees so-called second-class cities. Pennsylvania groups its cities by population tiers. A member of the law firm oversight team commented: “Overall, the Act 47 program is a partnership between the affected community and the oversight team. It’s not a receivership, like some states have. Critics say it’s hard to get out, but Pittsburgh has shown that with the right plan of action, you can get out.” Nevertheless, Pittsburgh still confronts serious challenges, notably in pension funding, which is around 59%. As of January 2009, Pittsburgh’s combined pension plans were funded at merely 34%. A law passed that year requiring the state to absorb city plans if they remained at less than 50%, would have forced a spike in Pittsburgh’s contributions. To counter that, the city boosted its pension funding levels by earmarking $736 million of parking tax revenues as a new funding source through 2041.

Harried in Harrisburg

According to a state official, the state’s capitol city, Harrisburg, has enough cash to last through November. The official noted that delaying payments to some vendors could help Harrisburg make it through the end of the year. The official, Fred Reddig of the Department of Community and Economic Development, which oversees the state’s distressed communities, also said the city may issue some tax anticipation notes (TANs) in January if banks are willing. Mr. Reddig said Harrisburg, which remains under state Senate is scheduled to begin hearings on the incinerator bond financings tomorrow.

Harried in Harrisburg

According to a state official, the state’s capitol city, Harrisburg, has enough cash to last through November. The official noted that delaying payments to some vendors could help Harrisburg make it through the end of the year. The official, Fred Reddig of the Department of Community and Economic Development, which oversees the state’s distressed communities, also said the city may issue some tax anticipation notes (TANs) in January if banks are willing. Mr. Reddig said Harrisburg, which remains under state receivership, will have a budget gap of about $15 million by year’s end: “Many municipalities need to address that cash-flow deficit early in the year and that’s where the Tan would come into play, in January, to address those liabilities that are brought forward. The Tan would deal with the deficit in the early couple of months” of 2013.” Harrisburg has about $320 million of bond debt that it cannot pay because of financing overruns to an incinerator retrofit project. The receiver’s office has also issued requests for proposals to lease or acquire the sewer and wastewater systems, and is negotiating exclusively with the Lancaster County Solid Waste Management Authority over the incinerator. Harrisburg’s largest vendor is Highmark Inc. of Pittsburgh, which provides non-prescription coverage to municipal employees. Although the city owes Highmark roughly $1.5 million, the carrier has not threatened to shut off coverage. To which Reddig warns: “The point is that the city needs to be in communication with their major creditors, much the same way you or I would need to talk with a creditor if we couldn’t make a mortgage payment. If you communicate with a vendor, it is less inclined to take action. If you let the lender know, it provides the lender some level of comfort.” Meanwhile, Harrisburg’s chief operating officer, Ricardo Mendez-Saldivia, reported that the city’s accounting firm Trout, Ebersole & Groff LLP has stopped work on the city’s 2010 and 2011 audits because the city has yet to pay the firm. Mr. Mendez-Saldivia reports that the 2010 audit is 90% finished, but only minimal work has been done on 2011. Tomorrow, the Commonwealth Court of Pennsylvania will hear oral arguments about the City Council‘s appeal of an order by Lynch to double the earned-income tax to 2% from 1%. In addition, the Pennsylvania Senate is scheduled to begin hearings on the incinerator bond financings tomorrow.

Harried in Harrisburg

Judge Bonnie Leadbetter of the Pennsylvania Commonwealth Court last week agreed to reconsider the bitterly contested 1 percentage point increase in the earned income tax she had ordered last month as part of the city’s receiver’s Chapter 9 recovery plan. But in response to a joint plea on behalf of the receiver, city council, and mayor; the judge has granted a reprieve.

Harried in Harrisburg

Harrisburg bankruptcy receiver William Lynch this week announced Harrisburg would miss $3.4 million worth of GO bond interest payments due tomorrow. The payments involve Series D bonds and Series F notes issued in 1997, both refundings, according to an official statement released at the time. They totaled $51.5 million. This would mark a second missed payment, the other, a $5.3 million payment, was due last March 15th. Harrisburg will, instead, use the funds to pay salaries. The missed payment comes as the city awaits the expiration of its state-imposed restriction barring filing for Chapter 9 federal bankruptcy protection on Nov. 30th. The city is overwhelmed with $320 million of debt, most of which is connected to its incinerator retrofit project, but also by intracity disputes, not to mention the different perspectives from the state with regard to priorities between local employees, local taxpayers, and bondholders—or, as City Council member Brad Koplinski stated: “While we never want to not pay our debts, it is vital that we pay the hard working employees of this city who maintain the health, safety and welfare of our citizens.” Meanwhile, Mr. Lynch, who is projecting a $12.6 million structural deficit, said last month that Harrisburg could run out of money by the end of September. The receiver’s financial recovery plan includes increasing the city’s earned-income tax to 2% to 1%, a plan to which the City Council has objected—and an issue the Commonwealth Court of Pennsylvania will revisit next month—albeit, as one person noted: “Increasing the property tax is like squeezing blood out of a rock…People don’t have the money. Harrisburg is poor and has been poor for a long time.”