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Council Moves Forward With Sewerage Authority Sale

By Jason Togyer
The Tube City Almanac
September 07, 2016
Posted in: McKeesport and Region News

(Correction added, 11:57 a.m. Sept. 8, 2016)

With no controversy, McKeesport City Council on Wednesday took the first step toward selling the city's sewerage authority to Pennsylvania-American Water Company.

By 6-0 vote, with Councilwoman LuEthel Nesbit abstaining, councilors authorized the Municipal Authority of the City of McKeesport to enter into a sales agreement with the water company. Nesbit is a member of the municipal authority's board. The authority board will meet on Thursday to consider the deal; Nesbit said Wednesday she will abstain from voting there, as well.

In a separate vote, council also accepted a $5 million advance payment from Penn-American. If for any reason the sale isn't consummated, the city will be required to repay the money, Cherepko said.

Although the final sale price of the sewerage authority isn't yet known, its outstanding debts --- including some $62.5 million spent recently to upgrade and expand the system --- top $90 million, city officials have said.

In a prepared statement, Kathy Pape, president of Penn-American, said Wednesday night that the company was "pleased" with city council's decision and was looking forward to the authority's vote on Thursday.

. . .

"Our company knows the Mon Valley well," Pape said. Penn-American provides water to several neighboring municipalities, including Clairton, Glassport, Liberty, Munhall and West Mifflin.

"Our heritage is rooted in the founding of our parent company, American Water, which began in the city of McKeesport in 1886," Pape said.

American Water Co., Pennsylvania-American Water's parent company, is a publicly traded company listed on the New York Stock Exchange. The company serves 2.3 million people --- primarily water customers --- in Pennsylvania, although it also operates 15 sewage treatment plants, including one in Claysville, Washington County.

The McKeesport municipal authority operates three treatment plants in the city's 10th Ward, Dravosburg and Duquesne. Founded in 1949, it serves about 64,000 people in 12 municipalities, including McKeesport.

. . .

City officials have been working toward a possible sale of the municipal authority for three years, Cherepko told council Wednesday.

Penn-American's offer for the municipal authority --- one of two received by the city --- was the best possible outcome, he said.

"Their offer was very straightforward," Cherepko said. "When we met with them, I felt like we had a good relationship with them, and there is no question in my mind that they want to come in here and be a partner with McKeesport."

City officials said privately that they sought assurances from Pennsylvania-American Water that the McKeesport authority's 47 employees would still have jobs after the takeover.

Pape said Wednesday that Pennsylvania-American would "welcome the MACM's employees" to the company's "family."

The process of closing the sale is expected to take up to nine months. McKeesport officials expect to realize a surplus after retiring the authority's debts.

. . .

Councilwoman Fawn Walker-Montgomery asked Cherepko what the city intended to do with the surplus from the sale. Cherepko said the city would create a restricted reserve fund that could be accessed only with council action.

"I am a big believer in checks and balances," he said.

The mayor added that selling the sewerage authority is McKeesport's last, best attempt to avoid a massive layoff and entering distressed status under the state's Act 47.

"I don't want to use the word 'desperate,'" Cherepko said, "but the other option is to lay off 60 employees, 25 to 30 of which would be police officers, and probably half of the public works department."

. . .

In 2011, a report on city finances and operations by municipal financial consultants at the Delta Development Group concluded that McKeesport was running a $1 million annual structural deficit, and that expenses were steadily outpacing revenues.

On Wednesday, Cherepko said the problem has only gotten worse. Since 2011, Cherepko said, the minimum required annual payment into the pension fund for city employees has gone from $1.1 million to $3 million. Other expenses also have increased, he said.

"Our health care costs have gone up $1 million in five years," Cherepko said. "Our garbage collection cost has gone up a half-million dollars." At the same time, he said, revenue streams like the federal stimulus package, which offset $275,000 of the police department's budget, have ended.

The city has drastically stepped up its efforts to collect delinquent taxes, Cherepko said. Business privilege tax collections are up 93 percent. But the increased revenue is not enough to make a dent in the expenses.

. . .

Selling the sewerage authority, the mayor said, is a chance to fund capital improvements to the city and balance the budget as it continues to look for development partners in areas such as Christy Park and the 11th Ward.

In the meantime, the city will continue to try to trim expenses through attrition, Cherepko said, noting that McKeesport's 2016 budget of $19 million is not much more than the $18 million budget of 2012.

"Every year, we've been trying to deliver the same amount of services with less manpower, less material, less money," he said.

"When someone says, 'What are your other options?' I can tell you that every other option has been explored," Cherepko said. "The vote (to sell the sewerage authority) is simple. There is nothing else we have."

. . .

CORRECTION, NOT PERFECTION: Kathy Pape's name was misspelled in the original version of this story. I apologize and regret the error.

Originally published September 07, 2016.

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