Tuesday, December 28, 2010

existential fiscal policy

Since several have asked, my general opinion of the latest news on the PPP front is that the latest plan reminds me of My Dinner With Andre.

Policy and philosophy are not really all that far apart.  Or maybe it's finance and philosophy that are more akin than we think.  A promise to pay more into the pension fund is not exactly something new in the big picture.  Act 205 pretty much requires the city to pay more into the pension fund in the future.  So much more that the pension fund will get to a fully funded state eventually. That is what the law already says, no need for any less statutory 'promises'. So if you step back from all the competing minutia of made up numbers all around, I don't see what will be different on January 1st.  We will have traveled a long winding road to wind up at the status quo. If this promise is made that is, and the state accepts it to forego the impending takeover by PERC...  we will be exactly where we would have been if none of this ever happened.  There will still be a large and growing unfunded pension liability and no state takeover. Like it was all a bad dream. Did it all really happen?

Something more substantive:  This plan as I understand it it is that somehow the state will accept a somewhat vague promise of future revenue from the parking authority and meters to meet the mythical 50% threshold in pension funding. Remember the 50% number is arbitrary and notional.  Come January 1 the new cycle of actuarial calculation will start and we will eventually learn the current state of the pension fund.  With lease payment or without, with notional promise of future parking revenue or not, the new calculation will show that the pension fund will never really achieved a 50% funding ratio. 

But something I have wondered about in the past, but really might impact this plan more than others (though I wonder about the others as well).  Here is what the law actually states is allowable rationale for setting rates in the parking garages owned by the parking authority. 

This is an excerpt of section  § 5505. Purposes and powers of the Commonwealth of Pennsylvania Parking Authority Law (Act of June 5, 1947, 53 P.S. § 341 et. seq.) that describes the valid factors such an authorities can use to set rates:

(d) Powers.......An authority has all powers necessary or convenient for the
carrying out of the purposes under this section, including:
9) To fix, alter, charge and collect rates and other charges for its facilities at reasonable rates to be determined exclusively by it, subject to appeal under this paragraph, for the purposes of providing for the payment of the expenses of the authority; for the construction, improvement, repair, maintenance and operation of its facilities and properties; for the payment of the principal of and interest on its obligations; and for fulfilling the terms and provisions of agreements made with the purchasers or holders of such obligations or with the municipality. Any person questioning the reasonableness of rates fixed by the authority may bring suit against the authority in the court of common pleas of the judicial district where the project is located. The court of common pleas shall have exclusive jurisdiction to determine the reasonableness of the rates and other charges. This paragraph supersedes a contrary provision in any home rule charter, ordinance or resolution.
So absent some explicit obligation, as in a bond or loan, then it is permissible for the parking authority to raise rates to just fund the city's pension obligations?  Begs the question of what rates are proscribed in any circumstances by that paragraph, but that is why we have lawyers I suppose.  

Do I think it matters?  Not really.   The law seems to give all legal authority to the local court so who knows how that would turn out if there is not path to appeal.  It does seem to give a very broad definition of who would have standing in challenging the rates, something that is usually what trips up folks trying to litigate against tax issues.   My non-lawyerly reading of "any person" would imply that even just a rate payer could sue; that it need not even be a resident.  Plenty of disgruntled and underemployed suburban-living laywers around who would be more than happy to file something. Someone is going to sue is all I predict.   Something that would not be an issue if the PPA decided to sell all or some of its Downtown garages which they are certainly permitted to do.  

So who knows where this will all wind up?   In my ideal world we would be thinking about these things strategically and not just making policy in this uber-reactive way.  There is nothing more reactive than what is going on now with this mad rush to do something, literally anything, to meet an arbitrary deadline based on notional numbers with a deadline now measured in hours.

Strategically to me would be to think through what assets the city should own and what assets it really does not want to own any more.  Then see if monetization of the former helps deal with the pension problem and go from there.   Anyone notice that the stadiumless authority lives this week.   More than a few assets over there on the North Shore nobody wants to talk about.   Assets you would think would soon be appreciating as the T extension comes closer to opening.

Hey, let's start talking about GASB 45.


Wait... I've got it.  This plan is all fundamentally one big huge TIF.  Not really a TIF, more Fee-Increment-Financing.  A FIF!


Anonymous BrianTH said...

The phrase "and for fulfilling the terms and provisions of agreements made with the purchasers or holders of such obligations or with the municipality" is an interesting one. It seems to me that it could be read as applying to ANY agreement made with the municipality, in which case they can do whatever they want with rates as long as the City is part of the deal.

Anyway, I'm very curious to know how this IOU would be treated in the future. Would it be periodically revalued? Could it be bought back by the City? In other words, exactly what sort of instrument are we talking about here, and how will it be treated in future accountings?

Oh, and if you were looking for an example of an illiquid asset . . .

Tuesday, December 28, 2010 1:59:00 PM  
Blogger Bram Reichbaum said...

A few questions for you sir:

1) When the new actuarial calculations are made in the new cycle, what's to stop them from being overly optimistic and notional as well? If you say we've never held a clear picture, what would cause the next Polaroid to come out any better?

2) Do you think there's any truth to the notion that PMRS / The State blinked at having to follow through and take us over, theory being that our ridonkulously large unfunded liability would ruin them?

3) We've had over a year (or, if you prefer, our whole civic lifetime) to address the issue more strategically and less reactively. Never happened. I guess that's not a question, but a political reality right up there with "no new debt" and "no selling public assets".

Tuesday, December 28, 2010 2:02:00 PM  
Blogger C. Briem said...

ah.. now (1) is a fascinating question. In fact the trend is clear past actuarial estimates of Pgh's pension liability are always optimistic. Optimistic being liability calcualted lower than reality turns out to be. That in fact is the entire(only?) problem here. However, even the most optimistic actuarial valuation gets hung up on a little problem every time they redo it. There is this little problem with more people being around than ought to be. Can't ignore them and thus the more current the valuation, thehigher the number. yes, I simplify a number of things. but the point is that time reveals the truth albeit slowly in actuary world. There was one year the actuary just ignored all the EMS workers. Wonder what that did to the MMO calculation?

(2) there is a realy mystery to me why Mcanerny has enabled this little episode. I believe the whole takeover idea was his, but to be clear that is specualtion to a degree. I really can't explain why they are facilitating this at this late hour. I can only believe someone in Harrisburg is having cold feet. Might be PERS calling over and saying... I didn't ask for this.

Tuesday, December 28, 2010 2:21:00 PM  
Blogger C. Briem said...

That wasn't clear. I think the original plan to take over all municipal pension plans under 50% funded came from PERC, or at least they were part of whatever discussion went into that. I didn't mean that he or PERC initiated anything with regard to the current plan to accept a pledge of future parking revenue toward calculating where the fund is at.

Tuesday, December 28, 2010 2:37:00 PM  
Anonymous MH said...

Optimistic being liability calcualted lower than reality turns out to be.

Isn't that the more straight forward part (compared to returns)?

Tuesday, December 28, 2010 2:41:00 PM  
Anonymous Anonymous said...

Bram--I don't think Chris' clarification was complete. The idea that a state takeover of the city pension = state taxpayers are on the hook for pension is a misnomer. State takevoer simply means state administration not state funding; city taxpayers are still on the hook for funding.

Of course, state administration would also mean transparency as opposed to the opacity we're used to (and Chris righteously and rightly decries). Makes one wonder how bad the pension books really look if the state, ICA, pension board, city council, mayor (tacitly by "not standing in the way" of the plan, said Kunka), unions and perhaps the PPA board all agree to this "promise". Hey, that's it, they can call it "The NEW Pittsburgh Promise"!

Tuesday, December 28, 2010 4:54:00 PM  
Blogger Bram Reichbaum said...

Anon 4:54 - I get that state taxpayers wouldn't be on the hook, but there would be some risk for those pensioners in the 900+ small municipality systems already invested in PMRS, wouldn't there? Not to mention Pittsburgh would then always be sticking its oversized and schizophrenic beak in their business.

I'm not accustomed to thinking of state organs as particularly transparent, but PMRS did make several very professional-lookin' presentations and representations. That always was the allure of the takeover.

Tuesday, December 28, 2010 5:24:00 PM  

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