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McKeesport will borrow $4.9 million to fix what the state auditor general called "a costly mistake" and to fully fund its pension plans.
The new debt will be incurred despite the fact that the city received $5 million from Pennsylvania-American Water Company as a pre-payment toward the sale of its sewerage authority.
Penn-American's pre-payment has been put into the bank, Mayor Mike Cherepko said, and he would like it to stay there. "We have to continue to operate as if we're broke, because we are," he said.
In June, state Auditor General Eugene DePasquale said that McKeesport took more than $729,000 in state funding that was earmarked toward aiding the city's pension plans, and spent it instead on general operating expenses.
Those pension plans, DePasquale said, already had a pre-existing shortfall that the auditor general's office estimated at $2.3 million.
The plans cover retired McKeesport police officers, firefighters and other municipal employees.
The bond issue approved by city council this month will close the gap and repay the $729,000, plus interest, Cherepko said.
"Everyone is made more than whole," he said. "At the end of the day, all of the employees and the pension funds are better off."
Pennsylvania-American in September announced its intention to purchase the sewerage authority and its three wastewater treatment plans at a tentative price of $156 million. A pre-payment of $5 million toward the sale has already been made, and another $2 million pre-payment is expected in January.
Although city council by a 7-0 vote approved borrowing the money to fund the pension plans, several members of council asked why the city couldn't just use the $5 million from Pennsylvania-American instead.
Cherepko said he would like the bulk of that money to remain in the bank as an emergency fund, and as a hedge against the possibility that the sewerage authority's sale to Pennsylvania-American won't go through.
"It's not that I think anything is going to go wrong --- please don't assume that," Cherepko said. "We recommended (the bond issue) purely as a precaution."
City officials expect the sale of the sewerage authority will close sometime during the summer of 2017, he said, but the sale must be approved by state regulators and the process is expected to take months.
Next month, city council and the mayor's administration will begin negotiations on the 2017 budget, which must be passed by Dec. 31.
Cherepko noted that the city's health care costs have gone up $1.5 million over the past four years, while garbage collection costs have increased $400,000. And te amount of money that the city has to pay into those pension funds each year --- its so-called minimum municipal obligation, or MMO --- also keeps increasing.
Already, he said, the city is trying not to fill vacant positions when employees retire, and is increasing its use of part-time police officers.
Cherepko warned council that hard choices will have continue to be needed.
"I don't want to scare people away, but we've got to start shaving some money off," he said. "We've got to try to fix our deficit."
Originally published October 11, 2016.