Although a major borrowing plan is still incomplete, Philadelphia's new fiscal oversight board went ahead yesterday and picked a finance team to sell $350 million of deficit bonds on the city's behalf later this year.
The board, formally known as the Pennsylvania Intergovernmental Cooperation Authority, selected Smith Barney, Harris Upham & Co. as bookrunner for the offering.
The board drew on a pool of national, regional, and Pennsylvania-based firms to fill in the slots for 16 other firms in the syndicate, including Merrill Lynch & Co., Lehman Brothers, RRZ Public Markets Inc., Hopper-Soliday Co., and two minority-owned firms: Pryor, McClendon & Counts & Co. and Grigsby Brandford Powell Inc.
For financial advisers, the board named Paine Webber Inc. and Hopkins/Penn Capital Advisors. The board named the firms of Drinker, Biddle & Reath and Wolf, Block, Schorr & Solis-Cohen as bond counsel.
Reed Smith Shaw & McClay was named counsel to the board, while Deloitte & Touche was named accountant and CoreStates Bank was appointed bond trustee.
The proposed $350 million bond sale will be used to eliminate Philadelphia's fiscal 1991 deficit of $219 million and a 1992 gap of about $40 million. About $25 million of the bonds will capitalize one year's interest, and the rest will establish a debt service reserve fund.
Bernard E. Anderson, chairman of the authority, said it was important to note that the authority, under its enacting legislation, must have two requirements complete before it can borrow money. The two required items are a five-year city financial plan and an intergovernmental cooperation agreement. Mr. Anderson said that as of yesterday they still do not "exist."
"I today urge that all efforts be devoted to complete work on both the plan and the agreement in order to permit issuance of authority obligations -- bonds or notes -- prior to the end of September," Mr. Anderson said.
City Finance Director David Brenner said he expects to have the two items ready for the authority in early August.
The state Legislature created the authority last month in response to Philadelphia's budget and cash crisis. The authority is empowered to sell deficit bonds backed by a portion of the city wage tax, and it can withhold state aid payments or bond proceeds from the city if budget and spending plans are deemed unbalanced.
"There is one message that has come to us from all those with whom we have met, from the individual taxpayer to the national financial community, namely that business as usual, and politics as usual, are no longer good enough for Philadephia," Mr. Anderson said. "The short-term fix to get through the next liquidity crunch or election should not and cannot be the standard by which this autority does business."
In testimony earlier this month, city officials said the general fund will be empty by late September or early October without an infusion of cash from the sale of authority bonds. But Mr. Anderson said he wants to wait until November or December to sell the bonds to give authority members more time to review spending plans.
In his statement yesterday, Mr. Anderson said, "I believe I reflect the views of my colleagues in acknowledging that Philadelphia faces a cash shortfall during the next 60 to 90 days, and we have consulted closely with the city concerning proposals they ahve developed to bridge that gap through a temporary city financing."
He said it was critical for the city to continue its efforts to secure its short-term funds and added that the authority will "do all that it reasonably can to assist it to do so."
The city must still submit a five-year spending plan to the authority for its approval before the bonds can be sold. That plan is expected to be released at the end of this month. And the authority must approve the fiscal 1992 budget passed by city counsel last month.
Mr. Brenner is negotiating a possible bridge laon with local financial institutions to meet cash-flow needs over the summer in the event authority bond revenues are not yet available.
He said yesterday, "It is a proposed bridge loan until the authority has its permanent financing in place." He declined to give any more details.