Were Billy Joel to sing about Allentown today, you wouldn't hear about closing all the factories down. Rather, he'd warble about cranes in the air, a new arena and filling pension funding gaps.
While still fighting to shake its rust-belt image, Pennsylvania's third-largest city is handing down a different kind of restlessness. In the past year it undertook two major deals, which Mayor Ed Pawlowski says dramatically alter the city's dynamic.
"They're significant game-changers," said Pawlowski, just re-elected to a third four-year term. "Eight years ago, we were an economic failure, headed to the brink of bankruptcy."
Late in 2012, the city sold $224.4 million in bonds to finance the construction of a downtown business district, developed by J.B. Reilly's City Center Lehigh Valley and centered around an 8,500-seat arena six blocks up Hamilton Street from City Hall. Its primary tenant will be the minor-league hockey Lehigh Valley Phantoms.
And in April, faced with a pension liability that could have consumed up to one-third of Allentown's general fund budget by 2015, the city leased its water and sewer system to the quasi-public Lehigh County Authority, which sold $308 million of bonds in July to finance the transaction. Allentown received an upfront payment of $211 million and will get an annual payment of $500,000 beginning in 2016.
They are the co-winners of The Bond Buyer Deal of the Year award for the Northeast region. The Bond Buyer will hold its annual awards banquet in New York on Dec. 5.
This year, Moody's Investors Service and Standard & Poor's revised their outlooks on the city to stable and positive, respectively. "That's nothing insignificant," said Pawlowski, a Democratic candidate for governor in 2014. A year earlier, Moody's downgraded Allentown's general obligation bonds to A3. S&P rates them BBB-plus.
The capital markets also looked favorably on the Lehigh County Authority. Standard & Poor's affirmed its AA rating and stable outlook for the LCA non-city system operations.
Neither deal came easy. "They involved a lot of angst and twists. Both of these projects were totally out of the box," said Pawlowski in an interview at his fifth-floor City Hall office. "Every time a door closed, we looked for a window to open."
The arena project needed special state legislation in 2009 to create a tax district known as the neighborhood improvement zone, or NIZ. Speed bumps that included litigation from surrounding communities, private developers and citizens forced reworkings of the law in 2011 and 2012 before the Allentown Neighborhood Improvement Zone Development Authority, or Anizda, could issue its inaugural $184 million of Series 2012A tax revenue bonds and $40.4 million of Series 2012B taxable bonds.
One objector, local developer Abraham Atiyeh, dropped his case last month after losing before the Commonwealth Court of Pennsylvania. Atiyeh had argued that the city's planning commission improperly granted land development approval for the arena.
PFM managing director Scott Shearer called the arena transaction his hardest ever.
"The deal took all of 2010, all of 2011 and three-quarters of 2012. It probably cratered multiple, multiple, multiple times. But we reached a point where we said damn it, we've got to get it done," said Shearer, who works out of Harrisburg for Philadelphia-based PFM. "We were dealing with all ends of the spectrum. The team owners, the developer, the city, several municipal agencies, each with certain objections. Trying to come to an agreement was extremely challenging."
Under the NIZ, act, certain taxes that qualified businesses pay within the 128-acre zone are pledged as security toward the bonds, as well as any other debt issued for qualified projects within the NIZ.
Citigroup was senior manager while Public Financial Management Inc. was financial advisor. PFM also advised on the water and sewer lease, for which Goldman, Sachs & Co, was lead manager.
The arena is scheduled to open Sept. 1, 2014. The Phantoms, the Philadelphia Flyers' affiliate, play in the American Hockey League, one level below the National Hockey League. The team has been playing in Glens Falls, N.Y., as the Adirondack Phantoms.
Phantoms co-owners and brothers Jim and Rob Brooks, who were born in southern New Jersey and raised in Pittsburgh, are gung-ho on the Lehigh Valley, which is an hour's drive northeast of Philadelphia. The Brookes had long wanted a hockey team and arena.
"We were looking throughout the U.S. to put a facility," said Jim Brooks. "We went from Sarasota, Fla., to Albuquerque, New Mexico, to San Diego to Orange County, Calif., and a lot of places in between," said Jim Brooks.
About eight years ago, according to Brooks, consultants identified the Lehigh Valley -- roughly an hour's drive from Philadelphia -- as ripe for a minor-league arena.
"It was a natural when you check out the demographics. The primary drivers from a facility like this are total population, disposable income and the number of companies with 20 or more employees. This market is great for that."