Official defends Alcosan financial deal actions
By Bob Bauder
Published: Monday, Sept. 16, 2013, 10:54 p.m.
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 firstname.lastname@example.org.
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