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Pittsburgh Water and Sewer Authority counts on $1 million in savings

Bob Bauder
| Friday, Aug. 12, 2011, 12:00 p.m.

The Pittsburgh Water and Sewer Authority expects to save around $1.4 million over two years through contracts approved Thursday with banks to guarantee payment of controversial variable-rate bonds, an authority official said.

The savings will come in the form of reduced fees from the Bank of America and PNC Bank, which will offer letters of credit insuring bonds totaling about $145.5 million,said Stephen T. Simcic, the authority's director of finance and business. Simcic said the cost of guaranteeing the bonds has dropped, and the authority expects to save around $720,000 per year over the next two years.

The $145.5 million represents only a portion of the authority's total debt, estimated at $665 million, about 55 percent of which accounts for variable-rate bonds, Simcic said. He estimated the authority would pay $350,000 to $400,000 this year for banks to back all of its variable-rate bonds.

The move will not impact rates paid by customers, said Scott Kunka, the authority's board treasurer and the city's director of finance.

"There won't be a lowering of rates, but it does help the authority quite a bit in not having to raise rates," Kunka said.

Councilman Patrick Dowd has been critical for years of the complicated bond deal, which Kunka said resulted in the authority paying $4 million to $5 million more than expected in fees over several years. Dowd on Thursday again criticized the bond structure, saying it is as complicated as reading "19th century German anthropological journals."

Dowd characterized the bonds as extremely risky and said money for debt fees, and time expended by the board in deciphering the authority's financial system, would be better spent on improving the authority's infrastructure. He urged the board to move its variable-rate debt to fixed-rate bonds.

Kunka, however, said it would cost the authority at least $50 million to do that. He said the authority's debt structure is stable and fees are dropping.

"The structure of the bonds still works," Kunka said, adding that the board would consider fixed-rate bonds when interest rates drop. "It's just the cost of credit, and our costs of maintaining this credit was less this year than it was last year. There's an element of risk involved no matter what you do."

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