How pension bailout came in a frenzy at 11th hour

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Desperate to craft a pension bailout before time slipped away, Pittsburgh City Council President Darlene Harris and a handful of other officials held a conference call about 4 p.m. Dec. 23 with the head of the state Public Employee Retirement Commission.

Council members and Mayor Luke Ravenstahl had been in an ugly months-long stalemate over how to buoy the pension fund by midnight Dec. 31 to avoid a state takeover.

Now, two days before Christmas, Mrs. Harris and the others returned to a question bandied about as long as a year ago: Could the city pledge a revenue stream to the fund long-term and use that infusion of value, rather than cash, to avert a takeover?

James McAneny, the head of PERC, readily agreed to the concept.

"We were like, 'Yes!' " Councilwoman Natalia Rudiak said, recalling the officials' excitement. She left the City-County Building that night without "a guillotine hanging over my head" and looked forward to Christmas dinner.

"I could actually cook my pierogis in peace."

But it was just the start of the frantic holiday marathon leading up to the New Year's Eve deadline.

Councilman Patrick Dowd delayed a family trip to Baltimore because of the wrangling and, after finally leaving town, cast votes by phone from the car. Bruce Kraus, stricken by the death of a friend, cast votes by phone from the funeral home and cemetery as one day's drama spilled into the next. Bill Peduto missed his mother's birthday.

The last panicky hours capped years of putting off the problem, and the mayor's office said it was council's own fault.

Mayoral spokeswoman Joanna Doven said council knew about the takeover deadline for two years, so it was "completely irresponsible" last week for members to be "running around like they did, making the mistakes they made," such as initially not allocating the appropriate amount of parking tax revenue, Ms. Doven said. "It really was a three-ring circus."

She called the bailout eventually reached a "Band-Aid" plan that may or may not prevent a takeover.

Many municipalities, school systems and states have faced similar pension crises. Pittsburgh's woes -- about $700 million in unfunded liabilities before the bailout -- have been blamed on past investment practices, stock-market volatility, overly generous benefits, population decline, the number and longevity of retirees and the city's limited revenue sources.

The crisis was acute by the time Mr. Ravenstahl took office in 2006. In 2009, the Legislature upped the ante, passing a law, Act 44, that said the city's pension fund had to be 50 percent funded by midnight Dec. 31, 2010, to avoid a takeover.

For most of 2010, the pension fund hovered at the 27 percent funding level. To get to 50 percent, the fund needed about $220 million in cash.

Warning of a takeover's dire financial risks, Mr. Ravenstahl last year proposed leasing parking garages and meters for 50 years and using about $220 million -- half of lease proceeds -- to avert a takeover. Council rejected the proposal, and Mr. Ravenstahl, in turn, rejected council's alternatives.

In recent weeks, union officials and other intermediaries arranged negotiating sessions for the parties at neutral sites, including the Rivers Club, the Duquesne Club and the International Brotherhood of Electrical Workers hall. No progress occurred, and council members complained that Mr. Ravenstahl stubbornly clung to his parking lease plan. Mr. Ravenstahl contended all along that the lease plan was the best possible solution to the pension problem. Not only would it generate $220 million to the get the pension fund to 50 percent, but the deal would also provide enough money to cover about $100 million in Parking Authority debt and about $132 million for other purposes.

In mid-December, council members sent city unions a letter asking them to pressure Mr. Ravenstahl into compromising. On Dec. 18, Mrs. Harris and other members renewed their pitch by speaker phone from the council president's office as the union chiefs held an emergency meeting blocks away, but the hoped-for support never coalesced.

Mrs. Harris bought and wrapped Christmas gifts in spurts between the pension work, often starting late at night, she said. She usually does the grocery shopping for Christmas Eve dinner, but this year dispatched her husband, John, to save time. She wasn't impressed with his efforts.

"He just picked up a ham," Mrs. Harris said. "I said, 'Is this it?' It was like a little twerp."

Early Christmas week, Mrs. Harris asked the Intergovernmental Cooperation Authority, a state-appointed board that oversees city finances, to arrange the conference call with Mr. McAneny of PERC, the agency that enforces state pension law.

City Controller Michael Lamb, who for weeks had worked with council members on bailout ideas, said Mr. McAneny about a year ago was amenable to the idea of buying life insurance policies on pension fund members and dedicating future insurance benefits to the fund. So Mr. Lamb said he believed Mr. McAneny would consent to use of another revenue stream, such as years of parking rate increases.

Ms. Rudiak said the Dec. 23 call was notable not only because Mr. McAneny agreed to the concept but because the mayor's office staffers taking part seemed -- for the first time -- to be interested in something besides a parking lease.

Council received no commitment from the mayor's office Christmas weekend or Monday, Dec. 27, but forged ahead anyway, scheduling a news conference for 9 a.m. Dec. 28 to outline their plan to avert a takeover.

Assisted by Mr. Lamb and council budget director Bill Urbanic, some members stayed at the office until 11 p.m. Dec. 27 to polish the plan, designed to tap more than $800 million in parking rate increases over about three decades. Council members said they rolled up their sleeves, put personal and political grievances aside and worked in small groups to write legislation and double-check the numbers.

"I think that's how you're supposed to write legislation," Mr. Dowd said.

Mr. Ravenstahl was invited to the news conference but didn't attend. Council introduced the legislation about 10:30 a.m. Later that day, city finance director Scott Kunka appeared in council chambers to say Mr. Ravenstahl wouldn't support the bailout plan, partly because the Parking Authority, which has its own debt to pay and infrastructure to maintain, couldn't sign away its revenues for 30 years.

Furious, council members pressed Mr. Kunka for a way around the problem. He could provide none. Members also criticized the mayor, saying he hadn't returned their phone calls but found time that day to help paint the goal lines and the word "Pens" at the makeshift hockey rink at Heinz Field, site of the NHL Winter Classic on New Year's Day.

The Penguins' website showed photos of Mr. Ravenstahl's visit to Heinz Field, and political wags soon began circulating an electronically altered version. It showed a smiling Mrs. Harris on the ice in business suit and dress shoes, dripping paint brush in hand. She had just added "ion" to the mayor's "Pens," creating "Pension."

Ms. Doven responded that given the scope of the city's challenges, the question of whether the mayor returned all phone calls New Year's week is "moot." But she said council members in recent weeks also canceled meetings and neglected to return phone calls, and she said council, too, appeared unwilling to compromise after "turning down half a billion dollars" for the parking lease.

At Doug Shields' suggestion, council passed a motion compelling the mayor's appearance at a meeting Dec. 29.

That was time for New Year's Eve dinner shopping, and Mr. Harris subbed for his wife again.

He "got the wrong kind of pork," Mrs. Harris said, and sausage instead of kielbasa. Dinner, she recalled, "tasted different."

At the Dec. 29 meeting, Mrs. Harris said, she all but begged the mayor to get on board. Mr. Ravenstahl said he wouldn't support council's bailout ideas but wouldn't obstruct them, either. He said he'd veto the plan immediately -- instead of using his 10-day review period -- so council could override the veto and make the bailout a law by Dec. 31.

That pronouncement quickly gave birth to a new term -- the "cooperative veto."

Council pressed on, dropping plans to use parking rate increases for the bailout and substituting 30 years worth of Local Services Tax instead. When Mr. McAneny questioned use of the LST, which was enacted for public-safety funding, council had to switch gears again.

Council voted 7-2 to kick in $45 million cash in debt service reserve funds and to leverage the "net present value" of $414.7 million in parking tax revenue over 31 years. Council gave the plan preliminary and final approval Dec. 29 and sent it to Mr. Ravenstahl for the promised veto.

Council planned to override the veto Dec. 30, making the bailout a law well before the Dec. 31 deadline, but on Dec. 30 council members learned that the city's actuaries had raised red flags about whether the net present value of the $414.7 million would get the fund to 50 percent.

The question was critical. If the fund ended the year below 50 percent, a takeover would occur, state-mandated higher pension payments would kick in, and the city still would have to dedicate the parking tax revenue to the fund for 31 years, regardless of other financial needs.

Council revamped the plan, including the $45 million as before but taking a much larger portion of parking tax revenue, $735.7 million, over the 31 years. A vote was set for New Year's Eve. It all meant that two years after the Legislature set the Dec. 31 takeover deadline, council would be pushing through a bailout at the last minute, with fingers crossed.

The Intergovernmental Cooperation Authority gave its approval at a hastily arranged meeting at 9 a.m. Dec. 31. Council gave the plan preliminary and final approval in back-to-back meetings that began at 1 p.m., taking the unusual step of restricting members' comments so transfer of the $45 million could be completed before the banks closed for the holiday.

Council delivered the bailout to a mayoral aide at 2:45 p.m., received Mr. Ravenstahl's veto at 3:30 p.m. and overrode it unanimously at 3:55 p.m., beating the midnight deadline by eight hours. Ricky Burgess and Theresa Kail-Smith, who had voted against an earlier bailout, supported the final version.

Mrs. Harris had scheduled an 11 p.m. meeting Dec. 31 to deal with any last-minute bailout problems, and, her members' complaints notwithstanding, she was reluctant to cancel it even after the veto override. She was concerned that the mayor would raise a last-minute objection and wanted a meeting available to address any problem.

Exhausted council members went home about 7 p.m. after the mayor's chief of staff, Yarone Zober, sent Mrs. Harris an e-mail saying the mayor would bring no business to council until Monday. "Happy New Year to all," Mr. Zober's e-mail said.

Now, the city must wait to see whether the state accepts the city's calculations and confirms that a takeover has been avoided. Word may not come until fall.

Ms. Doven criticized the process. After the mayor expressed interest in a parking lease, she said, council demanded that Mr. Ravenstahl undertake a more open, transparent process than Chicago Mayor Richard Daley did with his much-maligned lease plan. While Mr. Ravenstahl followed through on his commitment to transparency, she said, council's last-minute, 30-year plan received no public hearings or public comment.

"They basically achieved the opposite of what they intended," she said.

She said the fund still needs an infusion of cash for liquidity purposes and noted that the bailout did nothing to address the need for systemic pension reform. In addition, she said, the diversion of parking tax revenue could create short-term and long-term problems for the operating budget.

"At this point, we're working on making sure we can still balance our budget, still pave our streets, still deliver services to our residents that they need," she said.

"The fact is that council members never had a plan that worked," she said.

Joe Smydo: or 412-263-1548.


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