Good reasons to sell PGW

In government and politics, the opportunities to do big things in one fell swoop are altogether rare.

That's not what politicians tell voters, of course. They tend to campaign on the promise of massive and swiftly enacted reforms. But once in office, the harsh realities set in. For Mayor Nutter, those have taken the form of a bitter recession, a hostile union workforce, and a recalcitrant City Council. So the work of improving city government has been slow.

Now, though, Nutter has the chance to make a large and lasting contribution to the city's fiscal health, with a single, bold play. If, that is, City Council assents - which is far from assured.

According to the latest estimates, selling the city-owned Philadelphia Gas Works could yield between $422 million and $872 million for the city. If those numbers prove valid, Nutter wants to go ahead with the deal and plow virtually all the profits into the city's desiccated pension fund.

It's not a panacea. The pension fund is short by about $5 billion, and Philadelphia will still be in for a long, hard pension slog even if the PGW sale goes through. But this is far more than a drop in the bucket, as some critics of the deal have suggested.

This year, the city is slated to spend $668 million on pension costs, a staggering sum that makes it all but impossible for City Hall to adequately fund basic services, make the massive investments in education the schools clearly need, or significantly reduce tax rates.

Selling PGW could slightly ease that burden. City budget director Rebecca Rhynhart estimates that if the city were to net $420 million from the deal, Philadelphia's minimum allowable pension payment would decline by about $41 million next year alone, a sum that would grow in later years. That dwarfs the $18 million the city now receives annually in fees from PGW.

By sinking most of any profits into the pension fund, as the Nutter administration intends, the city would pay more than the minimum allowed by law for the first time since 2003. This is the municipal equivalent of beginning principal payments on an interest-only mortgage, and it is the only way the city will ever dig itself out of a pension morass dug by past mayors and city councils.

And yet, the current Council may balk for reasons that - so far - are not particularly convincing.

Some Council members are hung up on the loss of the annual $18 million PGW fee, even though Rhynhart says the administration would cover the hit to the general fund with the savings generated by lower mandatory pension payments.

Others worry most about the unionized workforce, or fret that a privately owned utility would raise rates more aggressively than a city-owned PGW. But the utility's employees would still work under their existing contract, and any rate hikes would be subject to the approval of the Pennsylvania Public Utility Commission, just as with every other utility in the state.

Council members are also understandably sympathetic to low-income constituents who rack up heating bills that they struggle to pay, and many worry that a privately held utility would be less tolerant of delinquent accounts than a city-owned PGW. But it was tolerance for widespread delinquency that helped make PGW such a massive fiscal liability for so many years, until Tom Knudsen - now Philadelphia's chief collections officer - turned the utility around.

Indeed, the utility has been so well-run in recent years that some, including Council President Darrell Clarke, wonder if the city would be better off trying to grow PGW rather than selling it. I'd like to hear more about his ideas, but history has shown that PGW could just as easily be a threat to the city's fiscal health as a balm, and the notion that the city should be expanding its role as a natural-gas provider seems counterintuitive, given that no other big city in the nation runs a gas utility.

Those arguments don't faze Clarke. He wants more study, and is in no hurry to approve a sale. Indeed, if bids come in at the low end of projections (projections that Clarke told me were "somewhat sketchy"), the Council president sounds right now like he would squash the deal.

"I'm not extremely happy about a $400 million net," Clarke said.

Clarke's reluctance seems a bit odd, given his keen past interest both in taming the pension beast and in selling off smaller city assets.

But there's another factor at play: Nutter's toxic relationship with City Council. Clarke noted that Nutter first floated the notion of selling PGW at a Chamber of Commerce breakfast last year, without giving Council so much as a heads-up. So while Clarke says he is open to considering a sale, he's in no mood to do Nutter any legacy-boosting favors.