PHILADELPHIA — Nancy Winkler recalled speaking with an investor — “a major market-maker,” she described him — shortly after taking over as Philadelphia’s city treasurer early last year.
The conversation, she said, is an effective warning that cities on the rebound must sell themselves effectively to investors.
“It was an eye-opener that tells us many investors do not have a good handle, even today, about what’s going on in the city,” Winkler said Wednesday at The Bond Buyer’s Symposium on Distressed Municipalities at the Hyatt at the Bellevue hotel.
“He said, 'What’s it like working in Philadelphia? You must have about 700,000 people and your real estate market must be in the tank,” said Winkler, who worked for 28 years at Public Financial Management Inc. She said Philadelphia’s real estate market has fared better against the recession than many other U.S. cities.
“After that conversation I realized that it’s incumbent for a city coming out of receivership, you have to take a good, hard look at how you communicate with investors for the long term,” Winkler added.
For example, she said said Philadelphia has expanded disclosure in its official statements, including data such as the increased value of building permits.
The city operates under the auspices of a state-created oversight panel, the Pennsylvania Intergovernmental Cooperation Authority.
Discussions about recovery Wednesday morning included realizing how communities get into trouble in the first place.
Two emergency managers in Michigan cities — Joyce Parker of Ecorse and Joe Harris of Benton Harbor — outlined steps they took to cut deficits.
Parker said they included restructuring debt and issuing $9.4 million in bonds, which needed special approval from the state Legislature.
“The bond issue was really interesting and played a part in reducing our deficit,” she said. Legislative provisions included a cap on city borrowing and a process for third-party tax collections.
“When you’re a city manager, you go through a honeymoon stage. In Ecorse, nobody was happy to see me,” according to Parker.
According to Parker, Ecorse ended a five-year practice of late audits, cut expenditures by $2.4 million, and saved about $2 million by operating public works projects in-house. “We no longer operate by borrowing money to make up the difference between revenues and expenses,” she said.
Harris warned that Chapter 9 bankruptcy only addresses symptoms of municipal distress. “The underlying causes look like a villain in a horror movie,” he said.
In Benton Harbor, Harris discovered that none of the four employees in the finance department had any accounting experience. “One of the first things I did was hire an accountant,” he said.
Robert Stout, the former finance director of Vallejo, Calif., which ended its three-year stay in bankruptcy protection last November, said that while in Chapter 9, the northern California city was able to negotiate with creditors to reduce bonding costs.
“We were able to say to our employees that we were going after bondholders as well,” he said.
In bankruptcy, Vallejo obtained a significant reduction in interest rates, extended maturities and used the savings to create a pool for unsecured general creditors, according to Stout.
Elsewhere, he said, communities can use his city as a reference point.
“They can pull a Vallejo.”
