With Pittsburgh Bond Downgrade, a Mayoral Lament - and an 'I Told You So'

(April 5, 2011) – With a recent downgrading of the city’s debt, Pittsburgh Mayor Luke Ravenstahl and his administration are lashing out at an “irresponsible” City Council that they believe chose politics over prudent pension reform.

On April 1, Standard & Poor’s downgraded the city’s debt outlook from “stable” to “negative.” According to the rating agency, this was at least partially a result of concerns regarding the city’s pension plan, which at $650 million underfunded (as of late last year) implies a funding ratio of 29% – one of the lowest in America.

“Pittsburgh City Council put politics over the financial health of our City and because of that, one of the world’s leading credit rating agencies raised the red-flag on our financial future,” Ravenstahl told aiCIO Tuesday morning. “This shouldn’t be a surprise, after Council chose to vote down the only real solution that addressed our pension crisis. It’s unfortunate and a shame that four years of bond rating upgrades have ceased, when we had a golden opportunity to greatly improve our City’s financial health and show the world that Pittsburgh is the best place in which to invest.”

Mayoral spokeswoman Joanna Doven echoed her bosses concerns. “Markets don’t like uncertainty,” she said. “City Council’s irresponsible actions put Pittsburgh and its residents in a state of great financial uncertainty.”

As noted, Standard & Poor’s rating downgrade stems in part from the perceived failure to reform the city’s pension plan late last year. With a December 31, 2010 deadline set by the state of Pennsylvania to bring the funding level up to 50%, Ravenstahl and City Council repeatedly butted heads over the best solution. The Mayor proposed leasing the city’s parking garages to raise the required revenue – ultimately receiving a bid for $452 million, well in excess of what was needed to top-up the fund – but Council repeatedly rejected the plan. Instead, in an eleventh hour bid to avoid a state takeover (and the required increase in contribution that would come with it), Council overrode a Mayoral veto and dedicated decades of parking revenue towards the fund. At the time, the Mayor expressed discomfort with dedicating such long-term revenue streams with one vote. Now, it seems, so is Standard and Poor’s. “We revised the outlook based on our view of Pittsburgh’s increased financial pressures associated with the city’s pension system,” company credit analyst John Sugden-Castillo said in a release on April 1.