Official defends Alcosan financial deal actions
The Allegheny County Sanitary Authority spent nearly $500,000 for financial advice in 2011 on a $260 million bond refinancing that later led to a $70,000 penalty from the IRS.
Alcosan paid the negotiated penalty this year rather than fight the IRS in court, Executive Director Arletta Scott Williams said.
“We maintain that the approach that (the consultants) took was appropriate,” Williams said on Monday, adding that the problem was an IRS rules interpretation. “It would have cost more to litigate than to settle.”
The IRS limits the interest and savings that can be generated from a bond refinancing, and Alcosan exceeded the limit, according to a disclosure Alcosan filed with the Municipal Securities Rulemaking Board.
Alcosan saved about $12.6 million by lowering the interest rate on its bonds from an average 5.49 percent to an average 4.96 percent, spokeswoman Nancy Barylak said.
Financial experts said consultants hired to guide the deal should have caught the mistake.
“You would expect a government issuer and their advisers to be aware of these rules and to stay out of trouble,” said James J. Angel, an associate professor of finance at Georgetown University. “This is the first time I've heard of anybody getting caught doing this. I don't know how common it is, but it certainly is not common for anybody to get caught doing it.”
Williams, who is ultimately responsible for the mistakes, plans to explain the situation in a report to the board, Barylak said. Williams intends to recoup the $70,000 plus a $52,600 fine Alcosan paid the state Department of Environmental Protection early this year for allowing its water discharge permit to lapse.
Williams declined to say how she plans to get the money for the fines, which the Tribune-Review reported on Saturday.
Alcosan receives all of its revenue from ratepayers in 83 Allegheny County municipalities, including Pittsburgh. The authority, which intends to raise rates next year, is planning to spend $2.8 billion over 20 years to stop sewage from overflowing into rivers during heavy rain storms.
According to a list of fees, Alcosan paid 10 consultants $489,973 to organize the bond refinancing. The list includes Mellon Financial Markets as financial adviser ($100,000) and the law firm Eckert Seamans Cherin & Mellott as bond counsel ($90,000).
Ron Gruendl, spokesman for BNY Mellon, parent company of Mellon Financial Markets, said the company stands by its work for Alcosan. Eckert Seamans did not respond to a request for comment.
“The work we did for them saved them $12 million,” Gruendl said.
Alcosan paid Downtown law firm Pepper Hamilton $75,000 in underwriters' counsel fees, the J.P. Morgan Trust Co. $23,850 as an investment escrow agent, accounting firm Maher Duessel $12,500 for auditing and verification, Houston Harbaugh $10,000 as trustee counsel and the Downtown law firm Babst, Calland, Clements & Zomnir $12,694 in solicitor's fees. Partner Chip Babst is the authority solicitor.
None of those companies responded to requests for comment.
The authority paid bond rating agencies Moody's and Standard & Poors $104,226 and $45,000, respectively, and Universal Printing $16,703 in printing fees.
Bob Bauder is a staff writer for Trib Total Media. He can be reached at 412-765-2312 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pgh. International leader strives to inject Pittsburgh flavor into airport
- Mt. Lebanon native, Iraq war hero’s action goes unrewarded
- Owner of Penn Hills tombstone business pleads guilty to swindling the bereaved out of $90K
- Ramp projects across Western Pennsylvania to start this week
- Groups seek $2.5M for North Side’s historic West Park fountain
- Falling bricks close 2 Squirrel Hill businesses
- No injuries reported in Holy Family Manor fire in Ross
- Newsmaker: Janice Cherry
- Brookline 12-year-old crashes mother’s car
- Carnegie Mellon University’s Speck device monitors indoor pollution
- ‘Swing Night’ has feel of Prohibition-era dance hall