Monday, March 19, 2007

Why is the ICA concerned about casino revenue?

A passing news blurb mentions how the ICA wants some casino revenue to be guaranteed by the state even before our casino opens. Contrast that with this earlier news blurb from last month about how the city has a 'big' surplus of $38.8 million.

Why would the ICA be so concerned if things were looking up for city finances? One reason is that the city budget projections count on revenue from the casino coming in next year. I'd have to go check, but I bet the budget counts on some casino revenue this year. You really need to look carefully at the previous year's finances, which are said to have ended with $25 million in the bank. Superficially you may think that going from a $25 year-end balance in 2005 to $38 mil at the end of 2006 is a good sign. You have to dig just a tad deeper than that. Just consider that in 2006 the city:

  • Borrowed $50 million additional dollars.*

  • Deferred ~$12 million in debt payments coming due into future years

  • Received at least $10 million in one-time payments from the state for capital purchases.

  • had more unfilled positions than planned as city employees rushed to retire before Jan 1, 2006 when certain retirement benefits would expire.
All to end up with $38 million in the bank. In Wall Street terms the cash burn is remarkably high. If the city was just breaking even with its budget, given the new borrowing and debt deferment alone the money in the bank would have ended the year in $75-85 million range. Think about those numbers a bit. As I have said before, both candidates for mayor ought to be careful what they wish for.

* Read carefully the Series C part of the bonds floated in June.


Blogger Skip said...

Am I correct to smell a faint aroma of Enron a la Arthur Anderson?

Monday, March 19, 2007 2:33:00 PM  
Blogger Smitty said...

I thought bankruptcy was a better option than Act 47 back in 2004.Get it over with rather than put off the inevitable.Orange County residents for the most part forgot about being in bankruptcy soon after it began.Officials worried about the perception of being bankrupt andhowitwouldimpact the public psyche.Within 5 years,most residents ofOrange County, couldn't remember what the default was all about!!It's worth it just to get out from under the Fire Figthers contract.

Monday, March 19, 2007 4:59:00 PM  
Blogger C. Briem said...

I would caution against using the Orange County situation as a benchmark for Pittsburgh. As I have written, OC was in better financial shape entering bankruptcy than Pittsburgh would be even after it went through chapter 9.

as for the enron comment. There is certainly nothing new in city accounting, so I would have to say no. It is something of a mystery why the city's auditors have generally signed off on the city's accounting for the last 20 years.. but the city has been near broke before.

Monday, March 19, 2007 5:14:00 PM  
Blogger Skip said...

Thanks for clearing that up. It seemed as though there may be a parallel to the Enron case only in the limited sense that borrowed monies are calculated as positive revenue.

Monday, March 19, 2007 6:36:00 PM  
Anonymous Anonymous said...

You clearly aren't a financial person.

Tuesday, March 20, 2007 7:46:00 AM  
Blogger C. Briem said...

hmm... not a 'financial person'. I suppose we could argue over hedging strategies for interest derivatives or something. but ok.

Tuesday, March 20, 2007 8:39:00 AM  
Anonymous Anonymous said...

According to some recent reports, the situation with Enron was less about obscuring financial statements and more the fact that no one read them with a critical eye. It sounds like the city's finances are in a similar place. Wouldn't it be nice to get a clear interpretation of the city's financial position from the controller? Or an annual non-partisan appraisal published annually in the paper?

Wednesday, March 21, 2007 9:40:00 AM  
Blogger Shawn Carter said...


You mean KPMG?

Wednesday, March 21, 2007 9:08:00 PM  

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