Debate over how much power Philadelphia's new oversight board will wield is delaying the city's long-awaited deficit bond sale, and city officials say a final plan is not expected until late September.
Before the board can sell deficit bonds on the city's behalf, it must negotiate an "intergovernmental cooperation agreement," specifying the extent of its power. The board, which was established in June to rescue the city from its chronic cash-flow crises, must also approve a five-year financial plan for Philadelphia.
Members of the oversight board are pushing for a requirement in the cooperation agreement that Philadelphia disclose detailed explanations of any deviation from the five-year plan. But city officials have been unable to agree what would constitute a deviation or when one should be reported.
Under the preliminary agreement, the city would have to make quarterly reports to the board. But the authority's chairman, Bernard Anderson, said the board also needs to know immediately if the city is about to take action that could influence compliance with budget guidelines, regardless of the established reporting schedule.
"That does not mean we are asserting the right to make decisions on what the city's adjustment would be to get back on plan," Mr. Anderson said. "But we do think we need to know in advance what the city is going to do to be in compliance."
He said that if the authority is notified too late to get the city back on track, it might be forced to exercise its right to withhold state aid payments in response.
City Finance Director David Brenner said the problem has been defining what unusual spending would be important enough to warrant special attention beyond the regular quarterly reports.
Philadelphia officials had hoped to introduce a cooperation agreement in city council last week, but no agreement was reached in time. The council adjourned without a proposal and will not reconvene until Sept. 12. Since every bill must be considered at least two weeks before a vote, approval of the agreement is not expected until the end of next month at the earliest.
The city council is not required to formally approve the five-year plan, but finance officials say it will not be finished until about the same time anyway.
"They are not as far along as we had been led to believe," Mr. Anderson said, referring to Mr. Brenner and other administration finance officials. "We were told we would have a draft [of the five-year plan] by the end of July and we do not have it. And it now appears we won't have it for another three weeks."
The state Legislature approved the oversight authority in June, when the city officially learned it would have to produce a five-year plan and an intergovernmental cooperation agreement. City finance officials, who learned the five-year plan would be a requirement several months before the Legislature formally approved the oversight board, have said state budget delays and the scramble to find interim short-term cash interfered with the effort.
Mr. Anderson said members of the authority will be "looking over the shoulders" of city finance officials over the next three weeks, so that when the five-year plan is released they will already be familiar with it.
"We are now in a position where a considerable amount of work will have to be done in a short period of time," he added. "But the authority plans to be very rigid when it comes to examining the assumptions on which spending and revenue estimates are made. We will reject any smoke and mirrors."
Once the cooperation agreement and five-year plan are approved, the authority will be able to begin marketing its deficit bonds. Mr. Anderson said the board has not decided the size of the bond sale, which will probably come in mid- to late October.
But he said it will be at least $300 million, in order to cover the city's fiscal 1991 and projected 1992 budget deficits, as well as provide a "cushion" of cash for the city. Last year's gap was $219 million, and the 1992 budget is expected to be about $42 million off the mark.
A syndicate has already been selected for the October bond sale. Smith Barney, Harris Upham & Co. will be senior manager and run the books for the deal, and Merrill Lynch Capital Markets will act as co-senior manager.
Mr. Anderson said "political leaders" in Harrisburg "suggested" which bankers should be involved in the bond deal, and the authority took those suggestions under advisement. "Some firms selected were firms that were not suggested by political leaders, and some firms suggested by political leaders were not selected," he said.
The authority last week also approved its own budget for the year, a "bare-bones, lean and mean" $740,000 spending plan, according to Mr. Anderson. "Hopefully, the city will be guided by our example," he said.