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City Council May Take Steps to Sell Sewerage Authority

By Jason Togyer
The Tube City Almanac
September 06, 2016
Posted in: McKeesport and Region News

In a long expected move, McKeesport City Council on Wednesday night is expected to take the first steps toward selling the city's sewerage authority.

At a council work session on Tuesday, Mayor Michael Cherepko said the city has received two competing proposals to purchase the Municipal Authority of the City of McKeesport, which also serves customers in Dravosburg, Duquesne, East McKeesport, Elizabeth Twp., Glassport, Liberty, Lincoln, North Versailles Twp., Port Vue, Versailles and White Oak.

Cherepko has recommended to council that the city accept a proposal from Pennsylvania-American Water Co. The exact sale price has yet to be determined pending an appraisal and an analysis of outstanding debts owed by the sewerage authority, but it will be in excess of $90 million, said J. Jason Elash, city solicitor.

"As a ratepayer and as a taxpayer, I would say there are more pros than cons," Cherepko said. "In fact, I see very few cons."

The actual purchase price of the municipal authority's assets will have to be determined following an appraisal of the entire system as well as any outstanding loans and bonds that must be paid off by the authority, Elash said. Those debts are more than $90 million, he said.

The entire sale process could take up to nine months, Elash said.

The city and the municipal authority are being advised in the transaction by the law firms of Dilworth Paxson L.L.P.  of Philadelphia and Grogan and Graffam P.C. of Pittsburgh, and by financial analysts Boenning & Scattergood of Scott Twp. and Public Financial Management Inc., of Philadelphia, city officials said.

In 1987, McKeesport sold its water treatment plant to the Municipal Authority of Westmoreland County for $15.5 million. Some older city employees and political leaders still view that sale as a mistake.

Cherepko acknowledged that the sale of McKeesport's last substantial asset may be controversial, but said he saw few alternatives.

"It's been no secret that we've been marketing the sewerage (system)," he said. "The bottom line is trying to bring some financial stability to the city and keep it out of Act 47," the state's oversight program for financially distressed municipalities.

Any surplus realized from the sale of the municipal authority would be used to balance the city's budget into the future, Cherepko said.

The municipal authority's board is expected to meet on Thursday and consider the takeover proposal from Pennsylvania-American.

Created in 1949, McKeesport's municipal authority and its 47 employees serve 22,000 homes and businesses and a population of 64,000 people. The original sewage treatment plant, located in the city's lower 10th Ward, was built in 1960. There are separate plants in Dravosburg and Duquesne.

Beginning in 2010, the system was expanded and upgraded to comply with more stringent state and federal wastewater treatment guidelines, and to accomodate new customers. The process cost more than $62 million and took five years to complete.

Pennsylvania-American is a division of New Jersey-based American Water Co., which is traded on the New York Stock Exchange and is a component of the Dow Jones utility average.

Pennsylvania-American already operates the water systems in several surrounding municipalities, including West Miffiin and Liberty Borough, as well as in parts of the City of Pittsburgh. It also operates 15 sewage treatment plants serving 21,000 customers, according to the company's website.

If Pennsylvania-American takes over the McKeesport authority, sewerage rates would be regulated by the Pennsylvania Public Utility Commission. Municipal authorities are not regulated by the PUC, and rate increases in McKeesport and elsewhere have provoked complaints from customers.

"Actually, we probably shouldn't be in the utility business any more," Cherepko said. "We don't run our own electric company. We don't run our own gas company."

If City Council takes action Wednesday night, Elash said, it will not be voting on the actual sale, but on whether to authorize the authority to sell its assets, retire its debts and go out of business.

Council meets at 7 p.m. Wednesday on the second floor of the old municipal building, 201 Lysle Blvd.

Originally published September 06, 2016.

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