PhillyDeals: Hard times test municipal-finance pros

January 17, 2012|By Joseph N. DiStefano, Inquirer Staff Writer
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  • Vice President Biden spoke to volunteers at Girard College on the Martin Luther King Day of Service. Teachers have lacked a contract for years, and enrollment is dropping.
  • Vice President Biden spoke to volunteers at Girard College on the Martin Luther King Day of Service. Teachers have lacked a contract for years, and enrollment is dropping.
  • John Bonow heads PFM Inc.

John Bonow says he drove across the country from his home on Bainbridge Island, Wash., to his new office as head of Public Financial Management Inc. in Philadelphia "in under three days" this month. (Why not fly? "My dog.")

He passed a lot of clients on the way. PFM is the largest of the specialized firms that advise states and towns on public-finance deals, according to Thompson Reuters, raising nearly $40 billion for bridges, schools, and other public projects in more than 750 bond sales last year.

The firm was founded by ex-Philadelphia finance officer (and future Obama aide) G. Edward DeSeve in 1975. He was joined in PFM's early years by, among others, John White (who retired as PFM boss last year), Sam Katz (Republican mayoral candidate-turned-documentary filmmaker), Marty Margolis (ex-aide to Gov. Milton Shapp), Milt Lopus (a well-known Harrisburg dealmaker, now retired), and later John Spagnola (the ex-Philadelphia Eagle). It has gone national (34 offices, nearly 500 employees) by raising private capital and buying regional rivals.

Story continues below.

No rest, even for No. 1

With tax collections down and the public in no mood for higher tax rates, towns have been borrowing less - even with interest rates at 40-year lows. And after "pay-to-play" muni-finance scandals in New York and other states, the Securities and Exchange Commission is writing new rules for advisers that will likely add to the cost of doing business, whether they lead to better advice or not.

PFM is hedging the bond market by also offering investment advice on whether borrowing, boosting revenue, or selling assets makes the most sense. The firm also sells short-term investments for governments to park cash for long-term projects.

Citing the Harrisburg City Council report that asked for federal and state investigation of bankers, lawyers, and advisers who approved that city's risky incinerator-finance projects that later defaulted, I asked Bonow if it's ever the adviser's job to refuse or discourage a deal. "It's our job to say no" when a deal puts the client's finances in danger, he said. Any project, funded with borrowed money, "has to be sustainable."

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