Saturday, September 18, 2010

zen and the art of municipal finance, or.... bonds, stadiums and parking privatization all in one post

A good article looking in general at the public funding of stadia:  New Stadium Strike out with investors and public. But what really got me thinking was the discussion in there of municipal bonds.

So I have the ultimate solution for the Pittsburgh Parking Asset monetization debate were are now in the middle of.. or will be when we learn the 'best and final price' on Monday. and technically you can still add your own guess to the post where I solicited predictions on what the top bid will be.   I said $381 mil....   probably erring a bit on the high side with that, but I bet we come in more than what the minimum expected is for sure.  Ready for the big idea?

Why not have the Sports and Exhibition Authority (SEA) buy the City of Pittsburgh's parking assets! 

I'm serious.  Think about it.

Some may remember the concern voiced here on how the SEA financed the then-future Consol Arena with variable rate bonds.  There was a moment in time when that appeared like it could wind up being disastrous.  Luckily (a very dubious adjective, but in context it really was for them) the recession kicked in and interest rates plunged.  What few have noticed is that the SEA now is paying virutally zero interest on the bonds that finance the new arena.  Doubt that? You can see exactly what interest rates the SEA is paying on the arena debt. Take a look.  As of last week it was 0.29% annually.   The decimal point is in the right place and the first numeral is not a typo.

Every basis point counts when you are paying debt on 9 figures.  Remember the days when the SEA faced perpetual budget crises that would leak into the news.  Nobody seems to be wondering why those problems have gone quiet.  Big difference between paying 8% interest or more on $300+ million, which they were briefly in late 2008, and the 0.29% they are paying today.

Back to the SEA becoming the master parking manager for the city.   Why not?  Think it's not their mission?  Both the SEA and the Stadium Authority for that matter have plenty of parking assets under their control and deal with even more parking issues as it is right now. The division of labor between all local public authorites are blurred beyond any meaningful distinction when you start to consider the role the SEA has in urban redevelopment in the Hill District, let alone the Stadium Authority's on the North Side.

0.29% interest rates is virtually free money. You would like that for your mortgage I bet.  Must be the current market rate for highly securitized public debt.   What else is going to be highly securitized public debt? I think some large parking garages in a highly constricted Downtown City of Pittsburgh and a undeniably oligopolistic market would fit that bill even better than a sports stadium dependent on payments from a casino with a failing business model. **

Anyone who can borrow at 0.29% annual interest can pay a decent price for a capital asset.  For the SEA to borrow $300 million dollars (a nominal 'purchase' price between the two entities) you are talking less than a $million/year in interest.  I think we could raise that with a big yard sale if nothing else. In fact, absent the cash that could be generated, you could also conceive of a financing package where the SEA buys out the Parking Authority's debt and refinances it at significant net savings on top of everything else that could come out of the deal.

So there you go.  Are there issues in all of that? You bet, but are they any more complicated or potentially worse than where we are at now, or where we are going. Kind of why we pay the lawyers and sundry consultants to sort all such things out.  Lots of side benefits to this.  I am not a fan of our proliferation of public authorities, but you could call this authority consolidation in a sense. 

It makes even more sense when you think about who the parking assets in the city serve.  The Downtown garages if nothing else as well as a lot of the surface lots serve a parking market made up of drivers from outside the city.  Just as the City/County Sports and Exhibition Authority supplanted the old City-only Public Auditorium Authority***, maybe it would make a lot more sense to a a city/county entity look after the major parking assets Downtown.

** Yes, there is the little issue of the undisclosed state guarantee on the arena debt, but lets just skip that whole murky debate for the moment since few like to talk about that either.

*** I'm forgetting all my authority history at the moment... I'll update that sentence later.


Anonymous Aaron said...

You put together a strong argument there, it would be interesting to see if this idea could develop further. As you say, it would create different problems and issues, but would solve others.

Sunday, September 19, 2010 6:03:00 AM  
Anonymous MH said...

Aaron is either comment spam or running for office.

Sunday, September 19, 2010 9:42:00 AM  
Anonymous n'at said...

My only gripe to this proposal is philosophical. An authority is a silo of single purpose - either to manage or eliminate municipal liability to their debt(s). It's a wonderful game used to stretch one's borrowing power.

Companies do it by creating other companies which hold exclusive supply contracts to the "host" company; people can do it, but you must commit fraud - or get married.

Having authorities swapping assets, or even working together is bad public policy at any level of government. That being said, I'm sticking with my idea of creating another municipal authority to contain Pittsburgh's pension assets. A new authority with significant assets/debts could obtain similar rates on the open market to the SEA for refinancing, but wouldn't affect the financial stability of another Authority because the liability is contained within the new Authority.

Oh, and 'flaming' or 'spamming' could be euphemisms children use to describe modern political discourse - they wouldn't be too far off.

Sunday, September 19, 2010 10:11:00 AM  
Anonymous MH said...

He came down on both sides of the issue and was promoting a casino. That's pretty about 1/2 of the people running for office. So, political discourse is clearly spamming. I'm not sure about flaming, at least in these parts.

Sunday, September 19, 2010 10:20:00 AM  
Anonymous MH said...

Wait, you probably meant the other non-literal meaning of "flaming." That also applies to local politics.

Sunday, September 19, 2010 10:40:00 AM  
Anonymous n'at said...

Yeah, Aaron didn't say anything bad about your liberal/conservative/flip-flopping/out-of-touch/elitist/populist/bought-and-paid-for voting record, MH.

Sunday, September 19, 2010 10:40:00 AM  
Anonymous MH said...

I just learned that the Allegheny County Department of Health pays somebody to wear a hamburger costume and pass out stickers urging people to cook their burgers until well done. Aside from a name that suggests the ACDH employees slept right through racial sensitivity training ("Brownie the Burger"), this seems like a good idea.

Mascots should be in broader use to help with public debate. They could try "Fracky, the Natural Gas-loving Cat" or "Dome-y the Civic Arena Preserving Rabbit" or "Barely Legal, the Lamar Executive." The latter travels around to all the good little politicians giving gifts valued at just under the amount at which reporting requirement start.

Sunday, September 19, 2010 3:53:00 PM  
Blogger C. Briem said...

@n'at: My only gripe to this proposal is philosophical.....

I don't disagree with most of that, but we are clearly living in a second best situation all around and have to make do as best we can. The Venn diagram of what is beneficial, legal, prudent and politically feasible leaves a very small intersection amongst them all.

Monday, September 20, 2010 7:28:00 AM  
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