Monday Thoughts on Public Finance in Pittsburgh

Today for a record third time this year, I'm at home sick. The weather outside is about as dreary as I feel. So let's spread the pain and discuss something equally dreary: Public Finance.

First, a couple articles/postings that I stumbled upon:

Christopher Briem has an op/ed in the PG about the City's looming pension crisis. Short version: it's underfunded and that's bad.

PG is reporting here that the City is probably going to use the recent upgrade from non-junk bond status to refinance existing debt. Fester has some comments on this... as does the Trib.

And just for perspective, this blast from the past detailing Pittsburgh's, then, increasing fiscal hole.

Now, onto the matters at hand: the fiscal matters discussed above are a traditional Guns vs. Butter dilemma

... only no Butter

... and no Guns

...but there IS a dilemma/tradeoff: should the city put the savings back into paying down its existing debt obligations, into capital improvements, or into its existing pension obligations.

So really, it's Guns vs. Butter vs. ... um... other Guns.

Hard to say what to do really, but there are a couple points that may assist in illuminating the discussion:

(1) Refinancing existing debt is good from a short term, local perspective, but could be disasterous from a long term, bond market perspective. Continual refinancing drives down the City's bond status as the projected payout in interest to the bond holders for an individual bond is significantly less over the long run. The market, in order to correct for and recoup this loss and against any future issuances, raises the rate at which the City can borrow. So in the short run, there are savings, but the ability of the City to undertake future borrowing at a low rate is hampered. Same sort of deal with paying down existing debt.

(2) Interest rates, in the forseeable future, will go up; stocks will go down; bonds will go up.

(3) The Pension funds, now tied, apparently, to aggressive stock portfolios, will be hurt from a slide in the stock market.

(4) The ability of the City to attract new development is hampered by disinvestment in capital projects (roads, bridges, parks, other public works improvements).

(5) Deferred maintenance, as was undertaken during the Flarehty adminstration, can be politically disasterous and financially costly. (Fortunately for Murphy, the outgoing Mayor is immune to the former.) Drive across the 31st Street Bridge and tell me that the City couldn't use a smidge of money for Capital Improvements.

So where does this all leave the City? Dunno, except that both the Pension fund and the Capital improvements will both have to be adressed sooner rather than later, while the pay down of the existing debt can be deferred across many years.

Still investing in Guns may be a good idea... can't invade Syria with Butter... can't even invade Mt. Oliver.

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Ny-Quil! Take me Away!