City Council gives initial OK to debt refinancing plan

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Like a homeowner in need of extra cash, the city of Pittsburgh plans to refinance $244 million in debt to generate $50 million for roads, bridges, vehicles and other improvements.

The deal, which would boost the city's total debt to $839 million, from $789 million, won initial approval from City Council yesterday. That's in spite of the fact that the administration would not estimate the fees it would pay to consultants, three of whom gave five-figure donations to Mayor Bob O'Connor's campaign.

The administration said those costs would be made available to council by Wednesday, when members will be asked to cast final votes on the borrowing.

With council approval, the money could be in hand next month.

The city plans to spend the $50 million over three years. In years past, it has borrowed that amount for improvements every two years.

This year, it would spend $20 million to boost street repaving from 12 miles to 50 miles, and to improve McArdle Roadway, Highland Avenue, the Millvale Avenue Bridge and flood control in the Hays neighborhood, said city Budget Director Scott Kunka.

By refinancing $194 million in existing debt, the city would lower payments this year and next to $76 million, from around $88 million. The balance would go into the city's savings account, Mr. Kunka said. Payments from 2012 to 2018 would be higher than currently scheduled.

Overall, the city would pay $73 million more in principal and interest over 20 years in return for $50 million now.

"We believe this is the best deal we could have," Mr. Kunka said. The city likely would have to borrow again around 2009 for more capital improvements.

The city's state-appointed Act 47 recovery team still is reviewing the plan, said the team's co-leader, James Roberts.

Those arranging the borrowing include Greg Zappala, managing director of J.P. Morgan Securities Inc.; PNC Capital Markets LLC; and law firm Pepper Hamilton. They were chosen by Mr. O'Connor, who can, and did, name the professional services consultants without any competitive process, said Mr. Kunka.

"The mayor had a long-term, pre-existing relationship with J.P. Morgan," Mr. Kunka said. Mr. Zappala was council's financial adviser when the mayor was a council member. "They came up with what we think are excellent ideas."

The mayor's 2005 campaign received $13,000 in contributions from PNC's political fund and its top executive, $11,750 from Pepper Hamilton and its attorneys, and $10,000 from Charles Zappala, who was a partner with nephew Greg in a local company that was bought by J.P. Morgan Securities.

Greg Zappala is the brother of Allegheny County District Attorney Stephen A. Zappala Jr., who has worked with the mayor on law enforcement issues.

Last year, then-Mayor Tom Murphy refinanced $200 million in city debt, paying $2.5 million, or 1.25 percent, in fees to consultants, lawyers, insurers and rating agencies. Mr. Zappala said he was trying to keep costs on this borrowing lower, on a percentage basis. That would cap them at $3 million.

Council's vote came on the same morning that Moody's Investors Service put the city on a watch list for a possible credit rating upgrade. Last year, Moody's said the city's debt was a decent investment for the first time in years. The city still plans to buy insurance to improve the rating and interest rate of its refinancing deal, Mr. Zappala said.


Correction/Clarification: (Published May 5, 2006) Only two of three members of a bond financing team referenced in this article on City of Pittsburgh debt refinancing as originally published on May 4, 2006, were directly involved in funding Mayor Bob O'Connor's election effort. The third team member, Greg Zappala, did not contribute; his uncle, Charles Zappala, did.

Rich Lord can be reached at rlord@post-gazette.com or 412-263-1542.


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