It's easy -- and tempting -- for people to dismiss complicated financial deals that are hard to understand. But when public dollars are at stake and the operation of a city water and sewer system hangs in the balance, that's when more, not less, of a contract's inner workings should be brought to light.
Councilman Patrick Dowd and Controller Michael Lamb make a good case that there is too little known about the $414 million debt package entered into last June by the Pittsburgh Water and Sewer Authority.
Designed to refinance old debt and bring the agency $98 million for system improvements without a water rate increase, the arrangement uses a tool called a swap in which the involved parties sell bonds to each other weekly at rates driven in part by averages of other swap deals. This deal also has $18.5 million in no-bid insurance premiums, consulting fees and payments to terminate 1-year-old contracts.
Post-Gazette staff writer Rich Lord laid out the details in a story last Tuesday and in an earlier article last July. It turns out the arrangement is already costing the authority $3 million more than expected and is in danger of unraveling due to the pullout of a New York firm, Dexia Credit Local, which guaranteed some of its transactions.
Mr. Dowd, who is running for mayor, called the deal "a perfect example of reckless decision-making" under Mayor Luke Ravenstahl. The mayor, saying this was an attempt "to politicize this issue at the expense of ratepayers," said the arrangement is the best the authority could get and that its costs rose only because of the nation's financial downturn.
That may be. But political year or not, Mr. Dowd's call Friday for an independent audit was the right one. Unfortunately, it was rejected by the water authority board. That means Mr. Lamb's plan to audit the authority later this year will be especially timely and welcome.
Because of the deal's higher costs, the interest earned on the $98 million is being used by the authority to make payments instead of improve the water system. As a result, some of the previously planned fixes have been delayed by six to 12 months. The loss of Dexia in June could make the arrangement even costlier to system customers.
Last summer, before the American economy sank, Mr. Lamb faulted the water authority contracts and said they were far from transparent. "Why are we participating in these complex deals, when the board members don't understand them, they've caused huge losses in other communities in Pennsylvania and they've led to criminal [probes] in other jurisdictions?" he told the Post-Gazette.
On Thursday he said that even if the economy had not soured and even if the deal had gone well, "it still would not have been right."
If the authority had opted for a straightforward bond refinancing, and not a swap, it might not be facing the uncertainty and rising costs that threaten its system improvements plan. For the sake of every Pittsburgher's water and sewer bill, it should reconsider its refusal of an audit. It's time to shine a light on this ever-costly arrangement.
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