PHILADELPHIA -- The chairman of Philadelphia's new fiscal oversight board yesterday said he wants to delay until at least November the city's $350 million deficit bond sale, despite predictions the city will be out of cash by September without the bonds.
"I would prefer that we delay going to market until November or December," said Bernard E. Anderson, chairman of the Pennsylvania Intergovernmental Cooperation Authority. The state Legislature established the authority last month to act as a proxy for Philadelphia in the credit markets and oversee the process of restoring fiscal integrity to the city's budgets.
Mr. Anderson said he would not rule out a September sale, "But it's hard to see how that could happen" given the time constraints and the actions that still need to be taken before the bonds could be sold.
He noted that the authority, which held its first regularly scheduled meeting only yesterday, must still approve Philadelphia's fiscal 1992 budget, authorize a five-year plant to eliminate the city's structural imbalance, and arrange for underwriters and ratings before the bonds could be sold.
Mr. Anderson said the next few months will provide a unique opportunity for the authority to use its leverage over the city to bring about significant structural change. If the bonds are rushed to market, he said, that opportunity could be missed, and "we will have lost the ballgame."
Both David Brenner, the city's finance director, and Jonathan Saidel, its controller, warned authority members yesterday that the city will be out of cash by late September without the proceeds of the bond sale.
Mr. Brenner, however, has been negotiating with local financial institutions to secure a temporary "bridge" loan that could get the city over the hump and allow the bond sale to wait until later in the year. Mr. Anderson suggested the city pursue that option aggressively.
A delay until November would make the bridge loan "absolutely imperative," Mr. Brenner said. But he added that such a delay might violate the intent of the authority's enabling legislation, which says the bonds must be sold by June 30, or as close to that date as practical. He said that selling the issue in November would be "pushing the outer limits" of that requirement.
To help secure such a bridge loan for a city whose credit has been deemed speculative grade by all three major rating agencies, the authority would be willing to "take a position that would give comfort to possible investors," Mr. Anderson said.
The comfort could include assurances from the authority that the deficit bonds will be sold at some point in late 1991, he explained.
About $260 million of the bonds will be used to eliminate the city's combined fiscal 1991 and 1992 budget gaps. Another $ 25 million will be used to capitalize one year's interest, and the remainder will establish a debt service reserve fund.
The authority chairman pressed Mr. Brenner to explain what other options beyond the bridge loan the city had in the event the bond proceeds were unavailable when the cash supply is depleted in September.
The last time "the wolf was at the door" in 1990, Mr. Anderson pointed out, the city found ways to cut and defer spending, and made it through the crisis. "Could you do something like that in the fall of 1991?" he asked.
Mr. Brenner said his options had been severely limited since last fall, when the city was able to dip into aviation and water department revenues to meet its cash crisis. Those revenues have since been segregated from the city's consolidated cash account, to prevent that kind of raid in the future.
In addition, Mr. Brenner said, virtually all the personnel cuts that could be made have been. The city is working under a union contract that forbids layoffs of any kind for union workers, Mr. Brenner explained. Therefore, the only staff reductions available are through attrition.
Mr. Anderson also expressed surprise that the city has not made more progress with its five-year plan, which finance officials knew would be a requirement of the deficit bond deal more than five months ago.
In his remarks to the authority yesterday, Mr. Brenner said the five-year plan should be ready for preliminary review by the end of this month.
In the meantime, authority officials said they will travel to New York City next Tuesday to meet with rating agency officials and investment bankers interested in handling the bond sale. Mr. Anderson said an announcement on a financing team is likely to be made at the next authority meeting, scheduled for July 18.
Also yesterday, the authority elected Ronald G. Henry, chief counsel to the Philadelphia Regional Port Authority, as its new executive director. Mr. Henry was a vice president in the Philadelphia Public Finance Division at Smith Barney, Harris Upham & Co. from 1985 to 1990.