Pittsburgh Must Meet Benchmarks, Says Overseer

Pittsburgh's overseer is justified by state law in withholding Pennsylvania gambling revenue from the city, according to the agency's executive director.

"They haven't met certain benchmarks," the Intergovernmental Cooperation Authority's Henry Sciortino said in an interview.

The city is suing ICA in the Allegheny County Court of Common Pleas, accusing the agency of illegally withholding $10 million in annual gambling host city revenue funds the past two years related to the Rivers Casino on the north shore of the Ohio River.

ICA officials say Mayor Bill Peduto is backing off his commitment of $86.4 million to fully fund current payments to retirees - separate from the city's overall unfunded pension liability estimated in the hundreds of millions - after market performance of the city's pension portfolio fell well short of budget assumptions.

Returns on Pittsburgh's employee pension funds have dwindled from 16.3% in fiscal 2013 to 5.5% this year, reflecting the slowdown in financial markets. State Auditor General Eugene DePasquale estimated the funds' assets of $675 million and liabilities of almost $1.2 billion. The Public Employee Retirement Commission considers Pittsburgh's pension fund "moderately distressed."

The authority also wants the city to implement an in-house employee payroll system with payroll and budget modules that could save about $1 million annually.

"The payroll system is an essential piece that board feels is necessary for effective city management," said Sciortino, a former deputy state treasurer and chief investment officer for the commonwealth. Sciortino is also a past Pittsburgh city treasurer and former chief investment officer and treasurer of its school district and water and sewer authority.

Peduto and city Controller Michael Lamb have suggested fully funding the pension obligation through its five-year plan under the state Act 47 workout program for distressed communities, a separate form of oversight for Pittsburgh.

"Investment yields are naturally predictable and the city is not committed legally to make up any shortfall in funding," Peduto said in a letter to Lamb.

Sciortino, however, said the funding problem requires immediate attention.

"They've made progress, but they still have to address these legacy costs head on," he said. "They can't afford not to do it. That's what got them in trouble in the first place."

In a letter to Gov. Tom Wolf and top legislative leaders, ICA Chairman Nicholas Varischetti called pension underfunding "one of the most serious barriers to Pittsburgh's fiscal stability."

The city five years ago avoided a state takeover of its pension funds by earmarking nearly $750 million in parking revenues over 30 years to prop its funding level above a state-mandated 50%.

David Fiorenza, a Villanova School of Business professor and a former chief financial officer of Radnor Township, Pa., said ICA can be a force to persuade cities to devote gambling revenues to other areas of the budget, such as pensions.

"However, once again the municipality is only fixing the leak and not curing the flooding problem of pension debt and other unfunded liabilities looming around like an albatross around government finance officers' budgets," he said.

State lawmakers formed the authority in 2004 to oversee Pittsburgh's finances, while the city flirted with bankruptcy and its bonds were junk.

Over a decade, Pittsburgh has received 11 upgrades, most recently in early 2014 when Standard & Poor's elevated its general obligation rating to A-plus. Moody's Investors Service revised its outlook to positive on Pittsburgh GOs in October 2014 while maintaining its A1 rating. Fitch Ratings rates them A.

ICA is invoking Act 71 of 2004, a state statute that says ICA has "exclusive control" of the gaming revenues dedicated for Pittsburgh, the only second-class city under the commonwealth's system of categorizing cities.

Sciortino said ICA nonetheless has authorized the city to draw down on $4.1 million of the 2014 gambling proceeds.

DePasqaule's office in mid-September started a "thorough review of the ICA's operations," with the focus on ICA contracts, its dispersal of gambling revenue and the authority's role in Pittsburgh's future.

Sciortino said ICA officials are willing to sit together with DePasquale and Peduto.

"I approached [DePasquale] as I am authorized to do, and offered to set up a time to meet with him and the mayor. We have continually invited the mayor to meet and settle this, but he has refused to meet with us."

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