In a long-delayed response to Philadelphi's cash-flow crisis, Pennsylvania lawmakers yesterday approved an oversight authority for the city and agreed to let officials there defer until September a major payment coming due this month.
The legislation, approved by a 123-to-80 vote in the House of Representatives, is designed to avert a default city officials said would occur next month unless action was taken by the state.
The Senate approved the legislation Tuesday, and Gov. Robert P. Casey signed the bill yesterday.
The legislation establishes a five-member oversight authority empowered to sell bonds on behalf of the city, whose geneal obligation debt is rated below investment grade. Proceeds wil be used to pay off Philadelphia's $219 million 1991 budget gap and a $42 million shortfall in next year's budget.
And in a major cash-flow boon to the city, an amendment to the bill also will allow Philadelphia to defer until September a $133 million payment due to the city's municipal pension fund on June 30. That payment, as well as large debt service payments coming due in July, had threatened to bankrupt the city next month.
With the establishment of the oversight board and the pension fund payment deferral, city officials now feel confident they can meet their obligations over the next several weeks.
"Without any question, we can make debt service in July," city Finance Director David Brenner said yesterday. The city owes $35 million on its bonds next month and $20 million in August, Mr. Brenner said.
Bond proceeds from the authority are not expected to be available by the end of the month, so the city has been negotiating a possible bridge loan with local banks in the event it were not permitted to defer the pension fund obligation.
Although the payment has now been pushed back three months, Mayor W. Wilson Goode said yesterday he still may pursue a bridge loan as another tool to manage the city's cash flow over the next several weeks.
Mr. Brenner said bond proceeds from the authority might not be available until Labor Day, so a temporary bridge loan might actually be a key component of the city's cash strategy over the next three months.
Sources say approval of the oversight authority will probably provide the security local banks have sought as a condition to providing temporary loans to the city.
"It would be very difficult for banks at this point not to grant the bridge loan," said one economist at a local Philadelphia bank. "This makes it doubtful the city will default, and it puts the city back on a footing where it can start trying to make the [fiscal] decisions it needs to make."
Last fall, a consortium of local banks led by CoreStates Inc. was extremely reluctant to lend Philadelphia a temporary loan, but extraordinarily high interest rates ultimately convinced bankers to provide $75 million of a $150 million package.
Standard & Poor's Corp. rates the city's debt CCC, and Moody's Investors Service and Fitch Investor's Service rate it B.
The bill signed yesterday also allows Philadelphia to levy a 1% local sales tax, which will be used to replace wage tax revenues diverted to back the authority's bonds. The sales tax is expected to generate about $75 million annually, according to city finance officials.
Philadelphia's city council last week, in drafting the fiscal 1992 budget, relied heavily on the assumption that the legislature would approve the oversight authority. Revenues from the proposed sales tax also play a vital role in balancing the city's budget.