City meets initial loan deadline

The city made a tentative step toward improving its financial condition last week as the treasury office completed paying the first portion of a $150 million loan Friday. According to Deputy City Treasurer Douglass Smith, the $105 million portion was repaid on a day-to-day schedule. The city paid out the final $5 million Friday. In addition, the city must repay the second portion of $45 million by April 15, but the city has already paid $22.5 million of this part. Smith said that the city plans to pay the interest in weekly installments and the remaining lump sum on April 15. The loan was made by the city's Pension Board -- which handles the pension for the firefighters and policemen's unions -- and a consortium of banks led by CoreStates International. Many feel that the timely payment will help the city dig itself out of a financial hole. Philadelphia has been unable to sell bonds on Wall Street due to the extremely low rating its bonds received from Standard & Poor's Corporation last year. The company, which performs analyses and issues credit ratings, rated Phladelphia bonds below junk bonds in financial security. City Controller Jonathan Saidel said Monday that the city has demonstrated marked improvement to Wall Street. "It's going to take a long time before the market has a belief that Philadelphia can get on its feet again," Saidel said. "But we've shown that we can pay off a large sum of money on time and we've shown that we have some responsibility." The city still faces two major obstacles on the road to financial health. The first step is to make the annual payment due to the pension board in order to fund the full pensions of firefighters and police officers. The city was initially supposed to pay the $140 million sum last November, but postponed the payment until June 30. However, Deputy City Treasurer Smith said the city may postpone the payment even further. "The decision hasn't been made as to whether we will make that by June 30 or not," Smith said. "It's possible that we wouldn't have to make it until December 30." According to Smith, the city charter says that the city must make an annual payment to the pension fund, but it is unclear whether this means the fiscal year or the calendar year. Smith said that the city may use this ambiguity as a way to postpone the payment until December, when there will hopefully be more money in the treasury. "The problem is they are trying to extend the payment to pension fund beyond its deadline," Saidel said. "If the oversight committee isn't established to apply some restraint this city will cease to function as of July. That means we may miss payments, we may miss paychecks." Smith said that the city may need to take out a loan to make the payment to the pension fund. However, Smith said that the city will not take any loans for such a purpose with a higher interest rate then the one due on the city's loan payments. "In effect we're saying if we are paying more for a loan than nine percent [the amount on the loan], then we will defer the payment," Smith said. "We're not going to take a loan for 12 percent when the payment is at nine percent." The other problem the city faces is the creation of an oversight committee by the state legislature. This committee, for which responsibilities have not yet been determined, would likely oversee the city's finances and advise City Council. The creation of such a committee was sparked by a clause in the pension loan which stated the city had to ask for such a committee before receiving $45 million of the loan. A bill which would organize such a committee is currently being drafted for presentation to the state legislature. Saidel said that the committee is important because it could force the city to make the pension fund payment on time.

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