Reuters blog archive
Philadelphia held its bond investor conference last week. Although the press was not allowed to attend, the city did post the presentations on its website. Philadelphia Inquirer reporter Joe DiStefano neatly summarized the city’s political and fiscal position, which is not as rosy as the presentations make it seem:
Philadelphia hopes to borrow more than $1 billion by selling or refinancing bonds over the next nine months. For all the city's growth around Center City, the colleges and the Navy Yard, officials face some big challenges: the lowest credit ratings of the biggest U.S. cities (low credit ratings tend to boost borrowing costs, though current interest rates are near rock-bottom levels); the financial near-collapse at the School District; the scheduled end of the sales-tax surcharge; labor negotiations and court decisions that have mostly upheld city labor union positions and reversed Nutter administration cost-cutting schemes; a thwarted real estate tax reform; stagnant office growth; high poverty in worn city neighborhoods; and more.
Philadelphia’s most important fiscal problem is its relationship with the city’s unionized employees. The city summed up the problem in the investor presentation (page 19). Note that the city has had no new agreements with three of four municipal unions since 2009, and that most employees have the right to strike.
The city’s pension fund has about 48 percent of the assets needed to cover its liabilities. To fix the pension shortfall, taxes must be raised, employees must contribute more, or both. To make a significant dent in the $5 billion unfunded pension liability, the city would need to contribute at least $200 million per year to the fund. The city has previously deferred pension contributions, and it is forced to make it up in 2013 and 2014, as seen in the gray bars below. Instead of raising its pension contribution amount after 2014, it looks like the city intends to return to the pension funding levels it had in 2012 (page 1, line 10). Essentially, it looks like the city intends to let the pension fund run down further. No one can stop it from doing this unless the state steps in.
There is a glaring gap in regulation - called Regulation Fair Disclosure - when it comes to protecting municipal bond investors. It appears that issuers may be in the habit of giving material nonpublic information to preferred institutional investors, while making retail and non-preferred investors sit out in the cold. Exhibit number one is the treatment of media members who have petitioned to attend the City of Philadelphia bond investor day scheduled for this Thursday. The Philadelphia Inquirer wrote:
Several news organizations led by Bloomberg News are protesting the exclusion of the news media from a two-day conference sponsored by the Nutter administration to stimulate investor interest in the city's municipal bonds.
from Unstructured Finance:
By Matthew Goldstein
It's been a while since we last wrote about the legal struggles of Tyrone Gilliams, the Philadelphia commodities trader/hip-hop promoter/wannabe reality show star/self-styled preacher, whom federal authorities have charged with scamming investors out of $5 million. But the University of Pennslyania graduate is making news again with the scheduled start of his Jan. 22 criminal trial in New York federal court.
Gilliams will be on trial with his former lawyer Everette Scott. Both men are charged with working together to "devise a scheme and artifice to defraud" investors out of their money that was supposed to have been invested in Treasury Strips--a derivative of U.S. Treasury bonds the separates the coupon and principal on the underlying note into different securities.
Across the nation cash-strapped municipalities are considering the sale of their public-utility systems. These moves are intended to raise cash and rid the municipalities of expensive liabilities such as debt service and pension obligations. But officials considering this approach might do well to look to France and other nations that are rapidly moving in the opposite direction with a "remunicipalization" of their utility systems. In 2010, Paris, in the best known case of remunicipalization, ended contracts with the world's two biggest water service companies, Suez and Veolia, bringing an end to their 100-year private duopoly. The reversal of a century-old practice in Paris was an acceleration of an international movement away from private control. Per remunicipalisation.org:
In the 1990s many countries privatised their water and sanitation services, particularly in the [hemispheric] South, as a result of strong pressure from neoliberal mindset governments and international financial institutions, to ‘open’ up national services.
from Photographers Blog:
By David Moir
The post-apocalyptic horror novel, ‘World War Z’, by Max Brooks, has been adapted into a film starring Brad Pitt and Mireille Enos and directed by Marc Forster. It has started filming in Scotland. The set is mainly on the streets in and around George Square in Glasgow, with its open space and architecture, substituting for Philadelphia.
Road signs have been put up telling you 16th Street, J F Kennedy Boulevard and Ben Franklin Bridge are just around the corner so hopefully you feel like you are in Philly, certainly some of the tourists from the U.S. I’ve spoken to seem to give it the thumbs up.
These are just a few of the (printable) words analysts have used to describe the August release of the Philadelphia Fed's factory activity index.
And well they might -- the Philly Fed has proven to be a nightmare indicator for economists. At -30.7 in August, the index came in far below the consensus forecast for a rise to +3.7 from July's +3.2. Even the lowest forecast was only -10.
Mayors take out the pitchforks
William Alden of Huffington Post writes about a "testy" encounter between mayors and federal officials. The federal dollars for municipalities from the American Recovery Act have basically ended and revenues for state and local governments remain weak. We should expect to see more of this.
The federal officials on stage were speaking in broad, theoretical terms. But the mayors wouldn't stand for that. They knew what needed to get done, they said. What they wanted from Washington was the dollars to do it.
She may not be the prettiest girl but at least she's out there
The home of the famous Mummer's parade struts its stuff for the bond markets.
The city of Philadelphia was named tops for transparency in a University of Illinois at Chicago survey of cities providing investors with financial information online.
Every municipality, like every person, has problems. Hiding them doesn't instill confidence in investors. I'm glad to see Philly and other cities letting it all hang out. From the the Philadelphia Inquirer:
The following is a guest contribution. Reuters is not responsible for the content and the views expressed are the authors’ alone. Elizabeth E. Evans is a freelance writer, columnist and priest-in-charge at St. Mark's Episcopal Church, Honey Brook, Pennsylvania.
A tiny nonprofit organization operating a national campaign from the basement of Calvary United Methodist Church in Philadelphia for 12 years to get more non-commercial radio stations approved may soon see its dream come true.
On January 4, the nonprofit Prometheus and other groups seeking to diversify media ownership, scored a victory when President Barack Obama signed into law the Local Community Radio Act. It directs the Federal Communications Commission, which regulates the national airwaves, to allow more low-power stations access to the FM radio dial.