new math, Pittsburgh, bond ratings and why it isn't surprising that the wall street analysts got it all wrong
They must have been reading the NYT. I wish that were a joke. It's worth pointing out that I notice a lot of haranguing over the NYT piece that was quite positive about Pittsburgh. What Pittsburgh? Lets be clear, the NYT was talking for the most part about the Pittsburgh region. I think the city has a lot of good stories to tell, but nothing in the NYT piece addressed specific fiscal issues for the City. Does that diminish what the NYT was talking about? No. The city and its financial miasma is just one small piece of the region. City = ~300K population. The region however you want to define it is 2 - 2.3-2.5 maybe even 3 million folks if you want to define 'greater Pittsburgh' wide enough. You just can't mix and match the two Pittsburgh's the way many folks jump to doing all the time.
That said, here is the deal on the Fitch ratings which is only talking about the City of Pittsburgh debt, and only one part of that debt even. They 'explain' their upgrade of the city's bond rating with this quote among others:
Like many older urban areas, Pittsburgh's economy has been challenged for decades by declining population. The decline appears to be abating; the 2007 estimated population was 7% below the 2000 census figure, after declining 9.5% during the 1990s. The unemployment rate remains low at 5.3% in September 2008 close to state and national levels. Education and health services represent a high 20% of MSA jobs providing some long-term economic stability. City per capita and median household income level indicators in 2006 were strong, at or above state and national averages. (emphasis added)
Lawyers and journalists I can forgive for sometimes getting confused by numbers, but when financial analysts do things like this I just get scared. Let's think about this. 7% population decline over 7 years = 1%/year. That compares to the less favorable (according to Fitch) 9.5% decline over 10 years. I mean... but... help me please. It can't be the case that the poor Fitch folks are challenged by the use of division. I think 9.5%/10= .95% / year which works out a bit better than 7%/7 years = 1% per year of population decline. Yeah, yeah, I know.. compounding as well should be factored in, but the point is still the same.
Yes, I know both the current population estimates and even the 2000 census numbers have some error. The current estimates are surely going to be different from what we think when we get new census numbers in just a couple years, but that is even more to the point.. there is no evidence I am aware of that the population decline in the city of Pittsburgh proper has abated much of late. The numbers Fitch cites would seem to show accelerating population loss, not any abatement. Anyone who has seen the vacancy stats in several city neighborhoods would not question the core trend. and if you want further proof, just go look at what is happening to the demographic-driven enrollment trends in the City of Pittsburgh school district which are plummeting ever faster in just recent years.
They have a further quote:
the city's combined pension funded ratio was only 35.9% as of September 2008, which does not incorporate a reduction in the assumed rate of return on investments to 8% from 8.75%. While the city funds its annually required contributions, actual investment returns have declined significantly and it is not expected that funding ratios will reach satisfactory levels for some time.I would love for them to calculate what 'some time' means. But given the use of math above I really wonder what they would come up with. Seriously, 35.9% in September. September? I think we know what happened to the stock market in October and November. In their cloistered number crunching, the Fitch folks also seem to have not read the local news on the current state of the pension fund. Short answer: it's not 35.9% currently and trending downward if anyone is curious.