April 1st, 2011
The following letter from Pittsburgh City Councilman Bill Peduto was delivered to Mayor Ravenstahl yesterday and was also presented to the ICA at yesterday’s meeting. it was written in response to the Mayor’s letter last week.
March 31, 2011
Mayor Luke Ravenstahl
5th Floor, City-County Building
414 Grant Street
Pittsburgh, PA 15219
Dear Mayor Ravenstahl:
Thank you for your interest in Council’s parking plan. Please see below for the answers to your specific questions.
Meters
Will there be any modernization of the meter system when the rates are raised and the hours of enforcement extended?
The Pittsburgh Parking Authority is already modernizing their meter system. We applaud them in their effort. Existing machines should be recalibrated by current Parking Authority staff. The analysis of Pittsburgh’s parking assets by the Finance Scholars Group took into account that meters would need to be modernized (exhibit IV-B.8) All calculations include sufficient funds to do needed modernization, including immediate modernization of Downtown and Oakland (exhibit IV-B.10). The need for meter modernization is immediate in areas where the rates are significantly increased, and “pay stations” are literally needed in order to pay the rate (because the meters cannot accept the increased coinage.)
Is it City Council’s intent that meter installation be added to the City’s capital plan or to the PPA’s capital plan?
The Parking Authority already has meter line items in their budget that can cover the necessary pay station installation for on-street parking. The Finance Scholars Group study estimates that necessary meter upgrades will cost approximately $747,000 in 2011, and decreasing to $300,000 or less the next ten years (FSG exhibit IV-B.10).
In addition to the FSG findings, the Controller was able to identify additional sources of funds for the PPA’s capital plan. The Parking Authority currently has $3,209,587 of expendable capital funds, and another $17,576,044 of unrestricted net assets.
What is the expected cost of the additional 922 meters?
These are 922 additional spaces, not 922 additional meters. With multi-meter space technology, the Parking Authority can install less than 922 meters. Operating expenses of the new spaces can be found in the FSG report in exhibit IV-B.9. It is estimated that the additional operating expenses for those new spaces will be $158,750 annually – while revenue from those new spaces will total $907,943 next year, increasing to over one million dollars by 2015.
The Parking Authority is aware of the costs of installation of meters, but unfortunately, due to the lack of information provided to the Finance Scholars Group (FSG) consultants during the course of the study, the numbers provided by the consultants are estimates, and not actual costs. According to FSG’s research, the physical multi-space meters (also known as “pay and display stations” or “pay stations”) can cost $5,000 each. Other cities have installed these pay stations for under $8,000, labor included. Our consultants estimated that complete purchase and installation of each machine would cost approximately $15,000. These machines can also be outfitted with advertising, further defraying costs of the machine.
What is the expected date by which these meters will be installed?
As soon as possible. Council sees no reason to wait to install these meters. The approved budget only relies on a $1.3 million dollars increase in the Pittsburgh Parking Authority PILOT. This means we will only be receiving an increased PILOT payment in the fourth quarter of 2011, giving the Parking Authority ample time to install the new meters and make the necessary adjustments to existing meters.
However, the Parking Authority can realize much more than an additional $1.3 million dollars by implementing the recommended changes.
Where will these meters be installed?
Please see the studies and reports by the Desman group (page 42), the concession agreements (schedule 10, pages 1 through 7), JP Morgan, Morgan Stanley, Scott Balice, LAZ Parking, and any other information your office prepared on this matter.
What is Council’s proposal for the new terms of the Cooperation Agreement? What is the proposed revenue share? Is it still 6.5% for the City and 93.5% for the PPA, or something different? Please provide a clear financial analysis proving the amount of revenue that the meter rates increases can generate and be transferred to the City. This analysis should include any operating, maintenance, and labor costs resulting from the rate increases.
This action is no longer necessary for the implementation of Council’s budget. If your office can increase the amount of funds the City receives through the co-operating agreement that would be acceptable.
The Cooperation Agreement has to do with the amount of meter revenue coming to the City. Council attempted to change this in order to dedicate meter revenue directly to the pension fund. However, for a number of reasons this was not feasible. As such, the attempt was abandoned and the co-op agreement no longer needs to be amended.
What does need to be amended is the Payment in Lieu of Taxes (PILOT) agreement with the PPA. This currently gives the City $1.3 million dollars, which is loosely based on the real estate tax we would be paid if they paid real estate taxes. This needs to increase to $2.6 million this year, and $9.3 million dollars in 2012 and beyond in order to cover the hole in the City’s budget from diverting parking tax revenue to the pension.
Garages
Has City Council considered the need for significant capital repair in their revenue calculations?
The Parking Authority currently has a capital improvement needs plan that was relayed to, and included in the FSG study (exhibit IV-A.10). This means that Council’s study is based on the needs of the Pittsburgh Parking Authority, and not the Parking Authority’s actual budget, which was much lower. In other words, Finance Scholars Group used the Parking Authority’s “wish list” rather than their budget. This also exemplifies the ongoing need for the Parking Authority to increase revenue. Opportunities for increasing revenue goes beyond raising rates and should include market based revenue opportunities, including advertising, etc. By not increasing rates in the past, the Authority allowed many of its facilities to fall into disrepair.
What is Council’s proposed schedule for garage replacement or rehabilitation? What is Council’s proposed source of funds for the garage replacement or rehabilitation?
Prior to the privatization proposal, the Parking Authority did not have any plans for any garage replacement. However, the proposed 2010 concession agreement proposed garage replacement in 2017. In 2017, there will be less than 10 years left on current PPA bond payments. At that time, debt service can be restructured, and any needed replacements can be financed with tax exempt bonds.
The exact costs of garage replacement are detailed in the Tim Haas engineering study on page 65. City Council was not provided a copy of this study. They estimate that the Smithfield/Liberty garage will cost $17,577,226 to replace, the 3rd Avenue garage will cost $30,049,222 to replace, and the 9th and Penn garage will cost $15,485,988 to replace.
FSG instead used numbers provided from the Parking Authority (exhibit IV-A.9). They estimated that the 9th and Penn garage would cost $15,854,674 to replace, the Ft Duquesne garage would cost $29,164,121 to replace, and the Smithfield Liberty garage would cost $18,893,279 to replace. Opportunities may also be available to sell one or more of these properties, as long as long term revenue projections are met.
What are the new garage rates?
The Board of Directors of the Parking Authority must set the rates for the garages. Attached are rates from the Council-Controller plan which may be used as a starting point for the purpose of the discussion, and for the purpose of the Parking Authority working as a partner with the City of Pittsburgh to protect the financial health of our city, workforce, and residents. Less than a third of the garage spaces downtown are owned by the Parking Authority. The proposed rates suggest the Parking Authority adjust its pricing closer to downtown garages, i.e. “market rate.”
As you can see in the attached document, the rates at both parking meters and garages that were proposed in the City Council plan are lower than the rates you proposed in your privatization effort. In fact, in no locations does City Council propose rate increases greater than you proposed and in some areas the Council proposal is 67% less than the rate increases you proposed.
When will the new garage rates go into effect?
Council has no control of when the new rates go into effect. The new rates will go into effect as soon as the Board of Directors of the Pittsburgh Parking Authority votes to put them into effect. Of course, the sooner you implement the increased rates, the more money the Authority will realize. City Council passed a parking plan at the end of the year. It is now a quarter of the way through they year and no action has been taken by your administration. The sooner the Board of Directors of the Pittsburgh Parking Authority meets and begins to address these issues, the better off the taxpayers of our City will be.
Provide a clear financial analysis proving the amount of revenue that the garage rates increases can generate and be transferred to the City. This analysis should include any operating, maintenance, and labor costs resulting from the rate increases.
The suggested garage rate increases would yield free cash flow in the amount of approximately $2,120,000 in 2011 increasing to approximately $8 Million annually by 2015. The detail can be found in the Finance Scholars Group study as amended to accommodate the lower rates suggested by the Controller-Council plan (EXHIBIT IV-A.1). Other supporting documentation can be found in the Desman meter study, the Desman garage study, the Scott Balice study, the LAZ study, the Morgan Stanley study, the JP Morgan study, the concession agreements, the Tim Haas engineering study, the P4 Partners study, the Parking Authority budget, and any other studies that your office did on the matter.
All members of City Council worked tirelessly during the past year to avert a state takeover of our pension system, a goal you publicly stated that you supported. This was done by dedicating a funding stream from the parking tax to the pension fund.
In order to reach the 50% funded level, City Council transferred $45 million dollars from the debt-pension trust fund to the pension fund. The City also irrevocably dedicated $13,376,000 from the Parking Tax to the pension fund every year. This increases to $26,752,000 a year in 2018, when the City’s debt payment drops by $18.6 million. In order cover this year’s budget gap, City Council transferred $12,076,000 from the fund balance to the 2011 budget and increased the Parking Authority PILOT payment by $1.3 to $2.6 million in 2011. The Parking Authority PILOT increases to $9.3 million in 2012 and beyond. The rates for garages and meters outlined in the City Council plan will result in an additional $9.8 million in additional annual revenue for the Parking Authority by next year, which more than covers the increased PILOT payment. By 2015, the Parking Authority will be receiving an additional $18 million in new revenue, which is much more than the additional $8 million in PILOT payments. This will also result in an additional $900,000 in parking tax revenue for the City.
As you can see from the brief overview, the City’s budget is sound and all the money that was approved by City Council, the Oversight Board, and Act 47 Coordinator for the 2011 Capital Budget is there. Council’s plan was endorsed by the City Controller, approved by the Intergovernmental Cooperation Authority, and supported by the Act 47 team. As this letter clearly outlines, there are actions that now must be taken by your administration and the Parking Authority in order to continue to avert state takeover and also avoid unnecessary tax increases or reductions in services. However, if your administration continues to delay the implementation of this plan, Council cannot be held responsible for the reduction in City services and the increases in taxes that you would need to implement.
Sincerely,
William Peduto
Cc: President and All Members, Pittsburgh City Council
Chair and All Members, Intergovernmental Cooperation Authority
Act 47 Coordinators
City Controller Michael Lamb
Finance Director Scott Kunka
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March 17th, 2011
Posted by Bill Peduto
City Finances 2011 – How We Got Here
You may have been reading articles about the city’s budget missing $25 million (see here and here). You may have also read about short term problems in getting the Administration to implement last years Pension Plan (click here). If you are aware of these issues, then you are probably also aware of the breakdown with the Administration over the joint purchase of a Financial Management System with the County (here and here). So, what does all of this mean and how is it all connected?
As you know, City Council, the Controller, Act 47 and the Oversight Board worked together last year in order to meet state requirements for the funding of our troubled pension plan. Although there was a strong effort to get the Mayor to join us, the Administration held fast that the ONLY solution was through the leasing of our parking assets for fifty years to a Wall Street consortium. Independent economic analysis proved this would be one of the most costly options the city could choose. The plan approved by Council and others would raise parking rates a portion of that proposed by the Mayor and use those funds to get the pension plan to over 50% funded. Unfortunately, the Mayor-appointed Parking Authority has taken no action and now the required funding of the pension plan is in jeopardy.
The Missing Capital Budget and How to Hide It
During the budget debate, the Mayor proposed spending $25 million from the capital budget in 2011 (see here). This coincided with the Controller’s Comprehensive Annual Financial Report (click here) from earlier in the year and with the Act 47 approved Five Year Plan (here) from 2009. However, with funds needed to purchase Police vehicles last month and needed infrastructure projects ready to begin, the Mayor’s Office stated that the capital budget funds had been allocated. In any other city, this would be easily determined by utilizing an ERP system (explanation here). A modern, transparent financial management system is standard in all major cities and corporations. But, not in Pittsburgh government – yet.
Late last month, the Oversight Board took action against the city for failing to implement an ERP system (click here for more). Despite work on the project since 2007 and the implementation with the County being the first priority of the 2009 Act 47 Five-Year Plan, nothing had been completed. The Oversight Board held $13 million in city gaming revenue and required that the city sign an agreement with the county – so Pittsburgh could have transparency in budgeting. The Mayor’s Office never sent an agreement, so the Controller and Council sponsored the agreement. We are ready to approve it today. Without a Financial Management System it is impossible to adequately track transfers from accounts, reimbursements from other government agencies, or potential shortfalls or surpluses. An EPR system is absolutely critical in order to maintain the separation of powers and assure proper checks and balances of city government.
Pensions, Parking, Debt & Accounting – Bringing it All Together
Without the approval of the Parking Authority to enter into a new Intergovernmental Cooperation Agreement with the city, the city’s pension fund will not meet the requirements agreed to by Council, Controller, Act 47 and the Oversight Board. Without the funds from the Parking Authority, the city will need to come up with nearly $15 million in new money. By not spending funds allocated to the Capital Budget for needed long-term needs and by transferring the funds from accounts with surpluses to other accounts, a short-term fix could be made to come up with those missing funds. In other words – robbing Peter to pay Paul. Finally, without a modern, transparent Financial Management System, these types of actions can occur without oversight – even with TWO Oversight Boards. The perfect storm of financial mismanagement – the type of games that caused this city to become financially distressed to begin with. A failed system that has to end today.
Solutions
Today, City Council has the opportunity – the responsibility – to end politics as usual in Pittsburgh. We can approve an agreement with Allegheny County to create a joint City-County Financial Management System. Implementing an ERP will provide the city with an open, real-time system for all financial matters. We can work with our Oversight Boards to audit all past transfers and assure that they meet government standards and our five-year plan. We can begin to compel the Ravenstahl Administration to implement the Pension Plan that was approved by Council, the Controller, Act 47 and the Oversight Board. We can begin to create a six-year plan for our Capital, Debt and Pension costs – one that will assure we meet our needs and our budget. And, we can look beyond six years into the future – when our debt payments become much lower and the opportunity for long-term financial stability becomes a reality. We can do all of this today – more importantly – we must.
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March 5th, 2011
The city of Pittsburgh’s current financial management system is aging, outdated and in dire need of replacement. The Act 47 coordinators have been urging the city to adopt a reliable, enhanced financial data processing and report platform (commonly referred to as Enterprise Resource Planning, or ERP) since 2004. Moreover, the amended Act 47 recovery plan approved in 2009 called for a city-county partnership on a financial management system. On February 25th, the Intergovernmental Cooperation Authority demanded that Mayor Ravenstahl’s office produce legislation authorizing the city-county partnership within 10 days. Mayor Ravenstahl made a counterproposal to partner with a Pittsburgh Water and Sewer Authority (PWSA) system instead. The Act 47 coordinators sent Deputy Finance Director Cathy Qureshi a letter detailing the problems that they had with the PWSA partnership proposal including the following:
- The material provided to them was not a comprehensive ERP proposal.
- The proposal did not address the requirements of the Act 47 Recovery Plan.
- An ERP requires an internal support team and the costs for this was not addressed in the proposal.
- Providing an effective training program was also not addressed.
- Developing a more comprehensive proposal, carefully evaluating it independently and in comparison to the County alternative, and executing that approach would set the process back by many months after years of delay.
On March 3, 2011, the Intergovernmental Cooperation Authority sent a letter to Pittsburgh City Council and asked that it be included in the record of that day’s proceedings. It voiced their ‘significant concerns at the prospects of “starting over”’. And, it ends with, “The ICA continues to encourage the City to implement the ERP System contemplated by the IGC Agreement and remains committed to supporting the City’s acquisition of an ERP System that is comprehensive and transparent.”
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February 15th, 2011
Posted by Bill Peduto
In 2010, the State mandated that the City of Pittsburgh meet a nearly impossible goal. A distressed city with two oversight committees was asked to come up with nearly $250 million in new, unknown revenue — and we had to do it by the end of the year. The proposal offered by the Mayor to lease all the parking assets for fifty years to private Wall Street interests was studied at length. Independent analysis showed that nearly $2.5 billion in lost revenue would be realized under that plan. To be certain, the rate of return for the private financial interests was greater than the costs associated with borrowing the funds (and using the same rate increases to pay for it). However, the Administration was opposed to any plan that would involve the issuance of debt. Finally, in the last two weeks, a compromise was offered by the State to permit the funds to be paid over time. Council approved that plan, with the support of both oversight committees, at the end of the year.
So where do we go from here? It is well known, and well documented, that we still need pension reform. Reform is needed from Harrisburg as well as Grant Street. We also need the cooperation of the Parking Authority in order to complete the plan approved at the end of the year. But, what is also needed is a comprehensive six-year capital budget that takes into account debt payments, capital budgets and pension costs. As this PowerPoint presentation shows, we have the opportunity to restructure our budget by 2018, when debt payments are reduced and have a new, sustainable budget by 2019. How we get there is contingent on a strict, disciplined approach from 2012-2017. What is needed is a six-year debt-capital-pension plan and we need to begin it — NOW.
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February 9th, 2011
The Wall Street Journal recently reviewed Pittsburgh’s pension system and, not surprising, did not like what they saw:
“By relying on outdated actuarial tables, making only minimum payments, and failing to limit benefits as the number of active workers paying into the plans fell, Pittsburgh has accumulated a $700 million unfunded liability, and its 29.5% funding level is among the lowest in the U.S.
Officials narrowly met an end-of-year deadline set by the state to present a plan for reaching a 50% funding level, which they hope will avert a possible state takeover of its three pension plans for city workers.”
While the article provides some cover to the city noting that things like state-mandated laws, the growth of non-profits and the 2008 stock market crash were beyond the city’s control, they do pick up on some key errors. These include decades of ignoring our unfunded liability and the continued use of 1984 life-expectancy tables all the way into the last decade.
The article does note some recent changes which will help including reducing the assumed rate of return to 8% and cutting the period in which liabilities must be paid to 30 years — or in other words, taking a more conservative, responsible approach. However, the article identifies the need for a change in the benefits themselves in order to provide a real fix for the system — something which necessitates state intervention.
You can read the entire article here.
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December 20th, 2010
While one might expect sources like Matt Taibbi and The Huffington Post to take note of Wall Street profiting from the financial hardships of American cities, even Bloomberg.com takes up the issue here in relation to Chicago’s lease of their parking meters:
‘The deal illustrates how Wall Street banks, recipients of more than $300 billion in taxpayer bailouts in the worst credit collapse since the Great Depression, are profiting from helping states and cities close record recession-induced deficits by selling bonds and leasing public properties. Chicago gave up billions of dollars in revenue when it announced in 2008 that it leased Morgan Stanley its 36,000 parking meters, the third- largest U.S. system, for $1.15 billion to balance its budget, said Alderman Scott Waguespack.” Alderman Scott Waguespack.’
The article states that Chicagoans will pay out at least $11.6 billion in meter fees to a Morgan Stanley-led partnership in the next 75 years — ten times what the city received for the agreement. That would be public assets at bargain basement prices.
The players behind the deal in Chicago and the proposed deal in Pittsburgh are one in the same. And, as Councilman Peduto put it in a City Council meeting last week, these folks are purely in it for their own bottom lines. Expecting Wall Street firms to have our city’s best interests at heart is like believing that check cashing companies have the best interests of the poor at heart.
The article mentions our mayor’s proposed deal for Pittsburgh.
It also mentions the fact that once you sell or lease your public assets, you cannot go back to that well again.
The Chicago deal — made in 2008 — doesn’t even have enough left to cover their projected budget deficit for next year. If this all sounds a little too familiar in terms of Pittsburgh’s pension problems, it should.
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November 24th, 2010
Pittsburgh’s proposed parking privatization deal is getting national ink. First, there was mention of it in Matt Taibbi’s new book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That is Breaking America.
Now, Alana Miller at The Huffington Post looks at the privatization of city parking in Chicago and Mayor Ravenstahl’s plans for Pittsburgh and she doesn’t like what she sees either:
An independent report released recently by the Finance Scholars Group (FSG) showed the financial pitfalls associated with privatization deals like the one considered by the City of Pittsburgh. “While leasing the Assets would provide a short-term relief,” the report states, “there would be considerable costs associated with exercising this option, potentially much greater than the costs of borrowing.”
[snip]
The proposed Pittsburgh contract with LAZ contains many other hidden costs, as did the Chicago deal. Both contain non-compete clauses restricting the city from creating or improving additional parking facilities in the future. Both put the city on the hook to pay LAZ phantom meter revenues in the cases of “compensation events.” The company in these cases would demand compensation if the city closes streets for repairs, reconfigures roads in ways that reduce meter use, hold a street festival, or otherwise infringed on meter revenues.
[snip]
In both cities, the process has not adequately protected the public. Pittsburgh’s earliest mistake was to pay Morgan Stanley as its adviser. The company is one of the primary investors in the Chicago deal and stands to gain from the deals they advise on. That is a clear conflict of interest. The financial arrangements and assumptions set out between LAZ and its financiers in both cities could provide vital information about their expected costs, profits, and respective legal obligations. The information, however, remains off limits under the guise of “propriety” business secrets.
After reviewing the myriad of problems with the Chicago deal, she ends her post with some sage advice for Pittsburgh, “As the saying goes, unless we learn from history’s mistakes, we are bound to repeat them.”
You can read the entire article here.
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On April 12, 2011, Councilman Peduto hosted the second post-agenda on the future of the city’s finances. This meeting focused on the next six years, 2012-2017. Many governments work to create 6-year capital plans in order to plan for major needs. Councilman Peduto is interested in creating a 6-year “Capital-Plus” plan that incorporates the city’s Operating Budget along with future pension payments, needed capital improvements and coordinate these costs with the city’s present debt structure. 
