City gets hefty loan, post postponing crisis

Philadelphia found temporary relief from its current cash crisis this week when two large pension funds bought into a $150 million dollar loan. The loan will allow the city to pay important bills and meet its payroll this winter. But the help is not coming cheap. The city will pay some partners an effective interest rate of more than 25 percent. Also, The Philadelphia Inquirer reported that local financial institutions wanted the city to create an outside authority to help solve the city's financial crisis before they would approve $45 million of the loan. The banks joined the deal last week, agreeing to pick up one-half of the package. In separate votes, the state teachers' pension board and the city pension board agreed to loan the other $75 million this week. Senior Vice President Marna Whittington said Monday that the immediate impact of the crisis on the University has been limited, but it does effect the University's community relations. "The current financial problems could reduce the city's appeal to students and faculty," Whittington said. If the city runs out of cash, it is highly unlikely that essential services like police and fire protection would be shut down, she said. The Senior Vice President added, however, that the University could feel the pinch elsewhere. For example, Whittington said that the University collects trash and takes it to a landfill run by the city. If the landfill were to close, the University would have to take the trash to a more distant landfill, raising the cost of disposal. The extremely high rates of return the lenders will earn on the loan have been attributed to the risk of the loan and negative publicity Philadelphia has received in local and national media. The loan came after weeks of fruitless and frustrating meetings between city officials, including Mayor Wilson Goode, and potential lenders. The city will continue its four-month-old freeze on hiring and will delay hundreds of payments to conserve its cash. The short-term loan does not resolve Philadelphia's projected $231 million deficit in its $2.2 billion budget for the fiscal year ending June 30. Staff writer Emily Culbertson and the Associated Press contributed to this story.

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