Although Allegheny County last month approved a controversial billion-dollar bond issue for the University of Pittsburgh Medical Center, complications have just begun.
Charging that the OK amounted to a "rubber stamp," 10 residents yesterday sued Allegheny County in an effort to derail the $1.175 billion issue, which is to be floated by the county's Hospital Development Authority.
Even if the lawsuit fails, there are no guarantees that the authority will ultimately handle the bond issue despite its vote in November to do so.
UPMC has apparently decided to hedge its bets by requesting that a state authority issue the same amount of debt just in case the county runs into problems, such as a lawsuit.
The Pennsylvania Higher Educational Facilities Authority is scheduled to vote tomorrow on approving UPMC's request to float $1.175 billion in bonds in an effort to refinance its debt and cut its borrowing costs.
"It appears they're giving themselves options, I would think," said Robert Baccon, the state authority's assistant executive director. "We just become a different option, and we would appreciate them using us."
UPMC did not respond to repeated requests for comment.
If the state wins the business from UPMC, it will also earn fees that are now going to Allegheny County to fund its economic development department.
The department currently earns $135,000 a year in fees paid by UPMC on the bonds involved in the pending transaction, and refinancing the debt would bump up the yearly payment by $40,000. The department stands to lose all that revenue if UPMC takes its business elsewhere.
"They let us know," Dennis M. Davin, director of Allegheny County Economic Development, said of UPMC. "And I don't blame them.
"If they have any questions about whether there's any type of lawsuit, whether it's real or it's unfounded, I would probably do the same thing if I was them. But we're pushing forward with issuing the bonds."
Both Mr. Davin and Mr. Baccon said there is no problem with UPMC proceeding down a dual track for a bond issue. Both also said there is no time limit in which UPMC is bound to finalize the bonds.
The authorities issue bonds but the risk and the obligation to pay them off are borne by the borrower, in this case UPMC.
County Councilman Charles P. McCullough, who is both the lawyer and one of the plaintiffs in the suit against the county, vowed to challenge UPMC's bond issue wherever the hospital system tries to obtain it.
"We will go to the state and any public authority they may seek help from to prove that this bond issue is not in the interest of Allegheny County and the residents of Pennsylvania," said Mr. McCullough, R-Upper St. Clair.
Opponents of the bond issue have railed against UPMC for benefiting from lower interest rates offered through the county authority while following through on the pending closure of UPMC Braddock Jan. 31.
In the suit, Mr. McCullough claims in order for the county authority to issue the bonds on behalf of a hospital, they must benefit the "health, safety and welfare" of people in the area served by the facility.
"If they don't want to keep [UPMC Braddock] open as a hospital, they have no business seeking public money in the form of low-interest borrowing as a subsidy," he said.
Mr. McCullough is asking a judge to declare the resolution adopted by County Council -- based on a bill submitted by Chief Executive Dan Onorato -- invalid, because the bond issue will not serve the public interest.
Because it is pending litigation, Mr. Onorato declined to comment through his spokesman Kevin Evanto.
The suit, called a statutory appeal, was filed in Common Pleas court.
Appellants other than Mr. McCullough are filmmaker Tony Buba of Braddock Hills, Annette and Bishop Baldwin, Patricia Morgan, Michelene Thomas, Linda White, Michael Stout, Virginia Eskridge and Edward Cloonan.