Sunday, December 26, 2010

Water Draught

Well, so much for Christmas cheer.. on Christmas Day no less the PG had this on latest from the Iron City front. i.e. the unpaid 6 (or 7) figure water bill Iron City owes to the Pittsburgh Water and Sewer Authority.  I just have to say that was one of the stranger news stories I have read in some time.  To paraphrase it was like.. sounds like there is a problem... have these strange partial emails here...  who knows what is going on?

I think I'm not even allowed to joke about wikileaks... but the potential puns of leaked emails out of the water authority are killing me.  alas. 

If I were to guess, and if I knew nothing of the whole story to date, I would infer from the news article that the PWSA had lost a check or something. Seriously.  Folks looking aimlessly for 6 figure wire transactions? Must get a lot of those?  Why else would local water bureaucrats need to be on a conference call with Oklahoma bankers.   Why does Iron City have an Oklahoma banker in the first place any way. Actually it says OK bankers 'affiliated' with Iron City.  Affiliated? 

If only one lost check was the only problem they had down there.

Probably wasn't a lost check..  and the back story is too long to recount.  If I were to humbly suggest what the real real story is in all of this.  One can read the explanation for the recent downgrade on most of PWSA debt and you get a feel for some of the issues they have.  What the story should be is this.  It starts in 2008 when the PWSA issued bonds totaling over $414 million. An amount which represented the majority of it's outstanding debt no less.

Never has so little attention been paid to something which would cost us so much. If taken together, was that at the time the largest debt offering any city entity ever put out there at once?

Most of it was for refinancing old bonds; so supposedly it would lower the financing cost of a big chunk of PWSA's debt.  That part turned out so well.  But mixed in was just over $95 million in net debt. Common trick to mix refi and new debt in one bigger package so you can spend most of your time talking how the refi will 'save' money while not really spending time on the new debt.  See the fixed and variable rate prospectuses (no, it's not prospecti) if you wish.

A water authority issuing new bond debt like that ought to be towards a goal of using the proceeds for needed capital investment.  Somone really should audit the PWSA to see how much of that $95 million specifically ever actually made it into captial investment of any kind whatsoever.  If nothing else, I am sure it would make a classic case study for a municipal finance class. I bet between fees and costs and things like penalty interest and covering other shortfalls, it would not be $95 million worth of new pipe.

If you want to get a feel for all the debt and financing issues that may be coming down the pike for the PWSA, read the fine print.

The saddest part about the whole PWSA variable rate bond imbroglio is that they issued that debt at a point in time that seems like it must have been just hours before it became apparent to the world that the variable rate debt market was going to blow up. You really have to parse the timing of it all to see how it was even possible they got into this mess.  Even I was a bit slow on the uptake and for those of you crazy enough to have read this post to the very last sentence... even that was a month or two too late.  As I recall, the main issue with the PWSA bonds at the time was that 1) city council had to extend the charter of the water authority in order to float the bonds and 2) there was not a comprehensive RFP put out for the bond services. Beyond that, nobody even questioned what they were doing and just trusted the folks who put the whole package together.

Again, it all comes down to trust.

and in what may be a first Cleveburgh story on the gridiron itself... Go Browns!


Blogger rich10e said...

is it possible for you to briefly state total debt of the city of pittsburgh including all the various authorities???

Sunday, December 26, 2010 11:57:00 AM  
Blogger Bram Reichbaum said...

Maybe the check bounced? Do wire transfers bounce or is there a different idiom?

And did you have any specific thoughts on what kinds of things it would take to "build trust", or is there nothing left but to hunker way down and run out the clock without even having a clock or a sundial? My gut just won't let go of its issues with that.

Ordinarily I would suggest shakeup ... the last shakeup I can even recall is DS moving over to Cityparks in tandem with a couple of other maneuvers, but that seems like pre-history.

Sunday, December 26, 2010 12:15:00 PM  
Anonymous Anonymous said...

There was not a comprehensive RFP put out for the bond services.

You are not surprised, are you?

This is how Ravenstahl (and Kunka) choose to operate. It is not about getting the best deal for the people of Pittsburgh -> It is about getting the best deal for JP Morgan and associates.

Sunday, December 26, 2010 12:40:00 PM  
Blogger C. Briem said...

The total debt number has been attempted in the past, but it is a bit trickier to come up with than you may think given some mutual covenants you need to decompile. It also may not be as useful a metric as you may think. Throwing revenue bond debt with GO debt might give you a number, but you really want to think about the two pots differently.

Bram.. I sense you are reacting to the vagueness of 'trust'. More formally I would say the need is for "confidence building measures". Given where they are at, this is a long term process at this point and I don't have a greatr answer. Probably a starting point would be mayor and city council prez actually making it to scheduled meetings on the pension issue. Until even that happens, does not make sense to discuss further things.

but countdown clock or not.. I doubt this is over with. The typical pattern in town is we take a disastrous situation.. move down a series of incremental steps that lead toward an end-state that is even worse than where we started. We will see where we land on this. Incrementalism on steroids is how I think about it as it is happening.

Sunday, December 26, 2010 1:39:00 PM  
Blogger Bram Reichbaum said...

Chris my use of quotation marks was intended to recall your commenting in my space, "building some minimum working trust." Not to indicate to anyone, "Jeez, this guy again with his vagueness."

On what you call incrementalism, I suppose that's when gaining some breathing room meets painting oneself into a corner. I'm reminded of the Homer Simpsonism, "Now for that happy period between the lie and the time it's found out."

Sunday, December 26, 2010 4:50:00 PM  
Anonymous MH said...

All I know is that if the water bill keeps going up,"Pittsburgh toilet" is going to mean taking a leak in the yard to save a the cost of a flush.

Sunday, December 26, 2010 7:08:00 PM  

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