The City of Pittsburgh aims to save its underfunded pension from a state takeover by giving it $250 million worth of parking tax revenues, a move supported by city council in lieu of a proposed lease of Pittsburgh’s parking assets to a JPMorgan-led investment group.
“Crisis averted – for now,” City Council Budget Director Bill Urbanic said in a phone interview.
Pittsburgh: keeping the
Urbanic’s previous estimates showed that the city would need to transfer between $203 million and $217 million into the 30 percent-funded pension to get it to the 50 percent threshold by 31 December.
“That’s why I went for $250 million,” Urbanic said.
The $250 million will be funded by a mix of parking rate increases and savings from the city’s debt service in future years, Urbanic said. Starting this year, the city hopes to “irrevocably” pledge about $13.4 million a year in parking tax revenues toward the pension. The $13.4 million will double to about $26.8 million in 2018, when the city’s debt service drops thanks to a decrease in its indebtedness, and will continue at that level until 2041.
Crisis averted – for now
Those parking tax revenues total $735.7 million over the 31 years, which comes out to $250 million in today’s dollars when the money is discounted to a present value at an 8 percent discount rate, Urbanic said. He used 8 percent in his calculations because that’s the pension’s assumed rate of return.
Added to a cash transfer of $45 million the city council approved before 31 December, that should get the city’s pension 60 percent funded, Urbanic estimates. The city council passed a bill yesterday requesting a formal present value calculation to present to the state to show that this is the case.
“We’re still waiting for final acceptance by the state, which we won’t have until September,” Urbanic said.
Pittsburgh Mayor Luke Ravenstahl opposed the parking tax transfer – he vetoed the bill approving the transfers when the city council brought it to him for a signature on 31 December – but the city council overrode the veto just in time to make their 31 December deadline to present a funding plan to the state.
Ravenstahl instead championed a proposal to lease the city’s parking assets to private investors in exchange for up-front cash that could be used to shore-up the pension. In September, the city received a $452 million offer from a group led by JPMorgan Asset Management for a 50-year lease of the parking assets. Like the city's parking tax plan, the parking lease would also have resulted in incrased parking rates. But the offer died in city council the following month, prompting a search for another option to save the pension from a takeover.
“Because it was so rushed and the way it was perceived was one of the reasons they, the council, could not support it,” Urbanic said. He added that a “no compete” clause in the parking contract with JPMorgan also “scared off some potential support” in the city council.
However, the city’s solution to the pension crisis does not rule out the possibility of a parking deal in the future, according to Urbanic.
“It doesn’t mean we’re ever blocked out of ever doing it again,” Urbanic said. “There’s nothing that prevents us from taking another look at it.”