Pittsburgh City Council advanced a $55 million general-obligation bond issue Wednesday that will be used to pay for what city officials and state financial overseers say are desperately needed infrastructure upgrades.
However, Mayor Bill Peduto’s administration, citing time constraints as well as questions and concerns from council members, pulled a piece of the package that would have refinanced some old city debt, a move that cost the city about $2.4 million in potential savings this year.
City finance director Paul Leger said he asked the mayor’s office to withdraw the refinancing component because he doubted it could be finished before the city’s next debt service payment is due on Sept. 1. He also cited the “comfort level” of some council members.
“We have an opportunity to do this again,” Mr. Leger said. “Everyone had questions about the refinancing, but nobody had questions about the need for $50 million for capital investment.”
Councilwoman Darlene Harris said at Wednesday’s standing committee meeting she was uncomfortable moving forward on the refinancing and wanted to see a report on how and where the $80 million in bonds the city issued in 2012 were spent.
Councilman Dan Gilman was among three council members, including Ricky Burgess and Council President Bruce Kraus, who acknowledged the limited time to review the original package but would have supported the refinancing of about $70 million in old city bonds at reduced interest rates. Mr. Gilman cited favorable rates in the current bond market and the uncertainty about where they might be months from now.
“I hope I eat my words, but I would be surprised if they’re lower than they are today,” Mr. Gilman said.
The bond issue will come up for a final vote Tuesday.
Mr. Leger said the city anticipates spending a little more than $50 million but included a $5 million “cushion” in the package required by the state and the underwriter, PNC Bank, in the event of any “extraordinary circumstances” such as a major increase in interest rates or other unforeseen costs between the date of the council vote and the final pricing of the bonds on Aug. 12. The cushion also prevents the necessity of a second council meeting when the final price and interest rate are locked in.
The new bonds will cost the city about $2.2 million a year in debt service from 2015 to 2018 before jumping to just under $4.5 million from 2019 to 2032, for a total cost of about $71.3 million, according to projections from Mr. Leger’s office. That will increase the city’s total debt service payments to nearly $89.5 million next year, well above the percentage set by the city‘s debt policy.
That policy calls for annual debt service to be 12 percent or less of general fund spending, which was budgeted at about $488 million this year. The city’s $87.3 million in debt service payments this year represents nearly 18 percent of general fund spending.
“We’ve been above that for as long as everyone can remember,” Mr. Leger said of the policy, though he added the city is quickly retiring old debt and expects to cut its annual debt service by more than half by 2019.
The plan prepared by the city’s financial overseers under the state’s Act 47 plan for distressed municipalities called for the city to issue $50 million in general obligation bonds in 2015 and 2017 to start addressing the city’s crumbling infrastructure, particularly roads, bridges and buildings. An amended version of the plan was adopted by the council June 30, and the bond package went to the council as soon as possible, said Tim McNulty, Mr. Peduto’s spokesman.
Robert Zullo: email@example.com, 412-263-3909 or on Twitter @rczullo.