On a 2-0 vote with 6 abstentions, Pittsburgh City Council has given tentative approval to a plan to use reserve funds to pay down higher rate debt and then float new lower rate bonds. The proposal from the Ravenstahl administration uses $45 million set aside by the council to pay down debt or add to the pension fund, to pay holders of a non-callable bonds through a tender offer. The administration would then issues a similar amount of debt through a federal program at a much lower rate. The current rate is more than 8% and the new rate is expected to come in at less than 3%. The council balked at the deal because the proceeds from the new bond can only be used for capital projects. Some members of council were eyeing that money to help shore up the pension fund this year.
Councilman Bill Peduto says he sees the value in the swap and at any other time he would probably approve it but not right now. “We may need that money to put upfront for our pension fund to lower our obligation,” says Peduto. “What we want to find out in the next week is what makes that money more valuable, using it as an upfront payment into the pension or restructuring debt.”
But the administration’s budget director Scott Kunka says the proposal cannot wait. He says if the bonds are not sold next week the federal program allowing for the low interest rates will expire and some of the tender offers may come off the table.
Peduto and other members of council feel they will have a better understanding of how to best use the money tomorrow. The Secretary of The Pennsylvania Municipal Retirement System (PMRS) is expected to report back to council and the Mayor’s office Tuesday with new calculation on the city’s minimum yearly payment for the next 30 years, if there is a one time upfront infusion of cash into the pension fund. Peduto asked for a calculation based on an additional $107 million. That would include the approximately $45 million in reserves, some $50 million already in the pension fund in high risk investments that the PMRS did not use in previous calculations and another $10 million the mayor has projected as surplus in 2011. Peduto says that will shurely lower the rates compared to the numbers present a few weeks ago that show average payments of $120 million a year with spikes of more than $160 million a year.
Peduto also asked to see what would happen if $220 million were also added to the fund some time before 2015. 2015 is when the actual take over of the pension fund would occur. $220 million is based on the Council/Controller plan to sell some parking assets to the Parking Authority, which would in turn float that much in bonds. The Mayor has rejected such a plan but Peduto says there is time to change that. “There is a mayor’s race in 2013 and if the mayor wants to dig his heals in and say, ‘no I won’t do it,’ then he is going to have to come up with a new plan… and if he is not willing I’m certain there will be a lot of other people who would decide to run who will.”
Councilman Ricky burgess and Councilwoman Theresa Smith gave the yes votes. The measure will now be up for a final vote Tuesday of next week.