Pittsburgh, once a financial basket case, wants a state agency to remove its “distressed” status.

“In 2004, we were on the verge of missing payroll and our bonds were junk,” the city’s finance director, Scott Kunka, said in an interview. “We have made systematic improvements, have gotten upgrades from the bond rating agencies, have balanced budgets and a large surplus, and have reduced our debt.”

The city on Thursday will formally appeal to Pennsylvania’s Department of Community and Economic Development to remove the stigma from the Steel City, and it has an important ally – its recovery plan coordinators under the Act 47 workout program, which DCED oversees.

“There’s a strong management team at City Hall on the budget side,” said Dean Kaplan, a managing director at Philadelphia consulting firm PFM Group Inc., which serves as the city’s Act 47 coordinator along with Pittsburgh law firm Eckert Seamans Cherin & Mellott LLC.

Pittsburgh has reduced its debt from $824 million in 2006, when Mayor Luke Ravenstahl took office, to $581 million, and expects to lower it to $490 million in 2014, according to Kunka. The city and its recovery coordinators anticipate completely paying off existing debt by 2026, meeting best-practice standards. In addition, the city has lowered its debt as a percent of its operating budget from 24% to about 18%, and expects to lower the ratio to 14% by 2017 or 2018.

Its only new-money issue in six years came in January, when it priced $114 million, which included $71.2 million of new-money bonds — taking in about $80 million as investors paid a premium — and $43.2 million of refunding debt.

In January, Moody’s Investors Service and Standard & Poor’s revised their outlooks to stable from negative after city officials visited the rating agencies in New York and pitched upgrades. Moody’s rates the city’s general obligation bonds A1, while Fitch Ratings and Standard & Poor’s assign A and BBB, respectively.

In a letter to DCED Secretary C. Alan Walker, Kaplan and Eckert Seamans partner James Roberts cited Pittsburgh’s structurally balanced operating budget with recurring revenues consistently outpacing expenditures. “After weathering a deep recession while preserving its operating balance and reserves, the financial outlook for the City of Pittsburgh is positive,” the letter said.

The hearing, rescheduled from last week after Hurricane Sandy hit the Northeast, will be at 3 p.m. in the City Council chambers. Fred Reddig, a DCED official and the head of the governor’s center of local government service, will preside. There is no statutory deadline for the decision, but the city could expect one by the end of November.

Because of continued legacy employee costs, Pittsburgh will remain under the budget purview  of the Intergovernmental Cooperation Authority, which oversees so-called second-class cities. Pennsylvania groups its cities by population tiers.

Over nine years, the mayor and city council have embraced changes required by the Act 47 plans in 2004 and in 2009, when the city updated its plan. It has reached labor agreements with eight of nine city unions and downsized municipal government by 25% from January 2000 to January 2012, scaling down some city services and putting out others for competing bids from private providers. Pittsburgh has also worked out shared-services agreements with neighboring communities.

“They’ve done a lot of things above and beyond the plan,” Kaplan said in an interview, citing Kunka and deputy finance director Cathy Qureshi for praise. “Overall, the Act 47 program is a partnership between the affected community and the oversight team. It’s not a receivership, like some states have. Critics say it’s hard to get out, but Pittsburgh has shown that with the right plan of action, you can get out.”

“Pittsburgh has taken some steps in their budget process the last two years to reevaluate capital projects and operating expenses,” said David Fiorenza, a Villanova School of Business professor and the former chief financial officer of Radnor Township. “Also, with revenues, the decrease in parking tax and the elimination of the amusement tax for nonprofit performing arts organizations is a positive step in the right direction for economic stimulus for Pittsburgh.”

Pittsburgh, however, still faces serious challenges, notably in pension funding, which is around 59%. The Pew Center on the States considers 80% an acceptable threshold.

As of January 2009, Pittsburgh’s combined pension plans were funded at merely 34%. A law passed that year requiring the state to absorb city plans if they remained at less than 50%, would have forced a spike in Pittsburgh’s contributions. To counter that, the city boosted its pension funding levels by earmarking $736 million of parking tax revenues as a new funding source through 2041.

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