City Council Kills Labor Provision Philadelphia Panel Calls Key to Bonds

Philadelphia's city council Saturday erased a key portion of a proposed power-sharing agreement for the city oversight board, and board members insisted yesterday they will not agree to sell deficit bonds unless it is put back.

The provision, which would grant the oversight board extensive and prompt review of future labor union negotiations, was a major demand of board members during recent negotiations to draft a cooperation agreement with the city.

Critics of the administration have said the city's largess in recent union negotiating sessions has contributed to Philadelphia's fiscal crisis, and the board wants to review future union contracts to watch for that problem.

But city council members, who must also sign off on the agreement, were confronted at a special session Saturday by angry representatives of the city's unions. They demanded the provision be stricken from the agreement, and the council's special committee considering the plan agreed.

Judith E. Harris, an attorney with the Philadelphia firm of Pepper, Hamilton & Scheetz and a member of the oversight board, said yesterday the only solution is for the council to reverse itself and put back the provision. "We cannot accept anything less," Ms. Harris said.

The council will have that opportunity later this week, when it is scheduled to consider the bill voted out of committee without the provision.

Ronald G. Henry, the oversight authority's executive director, said that if the full council adopts an agreement that does not include the labor provisions, he expects the oversight board to reject it, meaning that the bonds could not be sold.

Board members must agree to the final version of the power-sharing plan before they can sell deficit bonds that city officials say they need to avert insolvency later this month.

The provision the council discarded over the weekend would require Philadelphia officials to brief the oversight board weekly on the status of any ongoing collective bargaining sessions and their expected effect on fiscal recovery plans.

State Rep. Robert W. O'Donnell, D-Philadelphia and Speaker of the House, testified before the city council on Friday that the provision ran contrary to the state's intentions when it established the oversight board in June.

According to city Finance Director David Brenner, that testimony effectively killed the delicate balance negotiators thought they had struck in drafting the union oversight provisions.

But Ms. Harris said the provision is not intended to give the board undo power. "All we are seeking is information," she said.

Deborah Willig, an attorney with the Philadelphia firm of Walters, Willig, Williamson & Davidson, which is counsel to three of the city's four main unions, said the provision "went beyond the language of the enabling legislation" that established the oversight board in June.

"It would give the board big-brother status" and allow board members to "micro-manage" upcoming labor negotiations, Ms. Willig said. "An unelected, unaccountable board of five people who have no experience in labor negotiations would have an integral role in union contracts."

Ms. Willig said the unions would also fight another provision dealing with arbitration awards for the city's police and firefighters unions, which the council's action left largely intact.

The stormy council session on Saturday followed revelations the day before that Mayor W. Wilson Goode's administration has been privately negotiating with several universities and A.H. Williams & Co., which are considering the purchase of about $90 million in temporary loan notes from the city.

Board members and other city officials yesterday expressed exasperation at the effort, which was viewed by some as an attempt to sidestep the entire oversight process and settle the city's short-term cash crisis with another short-term loan.

According to some estimates, $90 million could give the city enough breathing room to take the administration close to the end of the year, when Mayor Goode's final term expires.

"I'm afraid Goode is trying to throw this in the lap of the next mayor," City Controller Jonathan Saidel said yesterday.

But Mr. Brenner has rejected that notion, saying the attempt to raise additional private money is a prudent way to address critical cash-flow needs until the deficit bonds can be sold.

One source close to the negotiating process said the council action Saturday might lend support to Mr. Brenner's position on the note deal. New uncertainty about when the deficit bonds might be sold makes it more likely the city would have to meet its short-term needs without help from the oversight board, the source explained.

But that scenario would mean hefty borrowing costs. Philadelphia paid an effective rate of 10.7% on a recent $110 million note sale, and market sources say another similar deal would require even higher yields.

"This time around, given the political negotiations, the rate would have to be higher to get buyers to consider it," said Alan Shankel, a vice president and manager of the municipal bond department at Janney Montgomery Scott in Philadelphia. That rate could cost the city almost $3 million over what it would need to pay in debt service on long-term bonds from the oversight board.

Mr. Brenner said yesterday he would not pay more than the city paid on its last note sale.

Mr. Saidel, who blasted the proposal in a letter to Mayor Goode last week, said the idea of trying to sell more notes at those kinds of rates is typical of a city habitually trying to solve long-term problems with short-term plans.

"When you go out to the market as a heroin addict any rate will do," Mr. Saidel said.

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