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Convention center wants bond to pay debt
The city-county authority expects to squeeze $540,000 from refinancing $7.715 million in bonds, but 25 percent of that -- an estimated $140,000 -- would be spent on fees paid to bond underwriters, attorneys and for bond insurance. The $400,000 that's left would help pay the convention center's operating costs and a loan payment on $20 million the authority borrowed last year.
Mary Conturo, the authority's executive director, said the costs are reasonable.
"Because it's a small transaction, we thought it was more efficient to get an underwriter, and we would make sure that the fees are fair," Conturo said. "You want to make sure you don't have too many parties to pay."
Conturo said PNC Bank will underwrite the bond for an estimated $35,000 to $45,000. Combined, the bond's legal counsel, Grogan & Graffam, and minority counsel Darryl Ponton & Associates, will receive an estimated $42,000. The remainder of more than $50,000 would go to bond insurance.
City Councilman Doug Shields, chairman of the council's finance committee, said the no-bid deal deserves scrutiny because the city and Allegheny County are ultimately responsible for the authority's financial obligations. And Shields already has reservations.
"You're using debt to pay debt. That's inherently wrong," said Shields, adding that it's uncertain what the authority will do to pay operating costs for the convention center next year.
Shields also said he is bothered that other banks won't have a chance to offer better terms. "Mary Conturo did not give me a legitimate reason why they did not go out to bid in the marketplace."
The convention center's operating budget needs an infusion of money because the authority's 2005 budget was balanced, in part, on an anticipated $2 million from slot machine revenue that it won't get. Pennsylvania is still in the process of awarding gambling licenses, so slots money is at least one or two years away.
The convention center posted a $4.9 million operating loss in 2004, it's first year of operation. It's on track to lose $4.1 million this year, according to a McCrory & McDowell accounting report submitted to the city's state oversight board.
If the councils don't approve the request, authority Chairman Mark Schneider said the authority could be forced to cut services at the convention center and/or raise fees, making it less competitive.
The other alternative would be to ask the city and county for the money, and Schneider doubts either is prepared to pay.
The authority is putting the city and county in a difficult position, Shields said. If they don't approve the refinancing, they risk hurting the convention center.
City Council is scheduled to examine the proposal Wednesday for the first time. Shields said it's possible the deal could be up for final consideration by the end of August.
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