Pittsburgh Mayor Luke Ravenstahl has asked city council to approve a plan to use reserve funds to pay off old debt and then issues new lower interest bonds but some council members are less than will to go along with the idea. As much as $45 million has been built up in reserve in recent years and had been earmarked by council to help pay off old debt or to shore up the pension fund. The administration is now asking council to use a portion of the money to pay down non-callable bonds through a tender offer and place the rest in a special account that would be used in 2012 when the city has its first opportunity to call the bonds. At the same time the mayor wants to issue 45 million dollars in “Build America” bonds. The “Build America” bond program is part of the American Recovery and Reinvestment Act and the federal government will pay 35% of the interest on the bonds. The proceeds from the bonds must be used for infrastructure projects. The non-callable bonds carry a rate of 6.5% and City Finance Director Scott Kunka says the new bonds would carry substantially lower rates.
The request upset several members of council. Councilman Bill Peduto says the city may need the money to either pump up the pension fund to lower minimum annual pension fund payments in the future or to get from 2016 when pension payments spike to 2018 when the city’s debt service payments drop. Councilman Patrick Dowd voiced many of the same concerns at a council meeting earlier this week. “This account… could potentially play a roll in being the solution to the pension problem,” says Dowd, “I understand that [the mayor’s office wants] to transfer funds and issue new debt to retire old debt, and I understand all that and I support that concept, but I do not support that absent our larger goals and strategies.”
Other council members questioned the mayor’s commitment to lowering the city’s debt. In recent weeks the mayor has rejected the so-called Council/Controller plan saying he will not issue any new debt. The Council/Controller plan involves selling city owned parking meters, surface lots and one parking garage to the Pittsburgh Parking Authority in return for $220 million. The money would then be used to boost the pension fund. To make that payment, the Authority would have to issue new bonds. City Finance Director Scott Kunka says the difference is that council wants to issue new debt and the mayor wants to refinance debt.
The mayor’s office says the proceeds from the Build America bonds would be used to “keep the capital program going.” In recent years the city has been using a pay-as-you-go approach to capital improvements.
Patrick Dowd asked for a three-week hold on the legislation, “while we find a solution to the pension problem.” Kunka argued that he needed the approval sooner or the tender offer would expire. Councilwoman Natalia Rudiak complained that the Ravenstahl Administration is always coming to council “at the least minute.” “Everything is rush, rush, rush,” says Rudiak. Council eventually decided to hold the legislation for two weeks. Kunka thinks he may be able to keep $7 million in tender offers alive until then.