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City taxpayers have reason to be thankful: McKeesport's proposed 2012 budget includes no increases in taxes or fees.

But Mayor Regis McLaughlin is cautioning his successor that balancing future budgets will depend on carefully investing the proceeds of a recent windfall payment from McKeesport's sewerage authority.

City Council will meet at 6 p.m. Tuesday to consider the 2012 budget of more than $18 million.

A draft proposal given to council Nov. 15 included wage freezes for non-union employees, reductions in community development spending and elimination of two vacant positions. Already, city officials have hit one pothole --- an unexpected $65,000 drop in the so-called "liquid fuels" tax money that is to be returned to McKeesport by the state.

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In a letter to city council, McLaughlin, who retires as mayor of McKeesport on Jan. 2, said the proposed budget provides "a realistic forecast for the new administration (and) a sound template for the future of our city." (Download McLaughlin's letter. PDF reader required)

"Except for the negotiated cost-of-living increases for all bargaining unit employees from Teamsters Local 205 and Firefighters Local 10, there are no raises," McLaughlin wrote. "This is unfortunately one cost-savings measure ... that is necessary to keep this financial management (plan) realistic."

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Earlier this year, council voted 4-2 to accept a $24 million payment from the Municipal Authority of the City of McKeesport, which owed the city $2.4 million on a loan made in 1997 and $21.9 million on the 2008 purchase of the city's sewer lines and other connections.

About $10 million has already been spent to retire existing city bonds, according to Dennis Pittman, city administrator, leaving about $21.6 million in debt outstanding.

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Of the $14 million remaining from the Municipal Authority's lump-sum payment, McLaughlin's letter recommends that council set aside $500,000 as an operating reserve in the city budget, and invest about $9.5 million into low-risk, insured investments earning about 2 percent annually.

McLaughlin and Pittman have recommended an investment strategy created for the city by Sewickley-based UBS Santia Foster Group.

The investment program is "deeply" embedded in the 2012 budget and "will establish a benchmark" for the city through 2015. If council adopts the UBS plan, McLaughlin said, the city could retire another $10 million in debt by 2016, which would improve McKeesport's credit worthiness and reduce its expenses.

On Monday, council held a work session to discuss the draft spending plan. Pittman said Wednesday that no action was taken on whether to adopt the Santia Foster investment plan.

"I'm hoping that if the budget is passed Tuesday, we can discuss that on Dec. 7" at the next scheduled council meeting, Pittman said. "I definitely want to discuss the rate of return. If council goes for a smaller rate of return, we're going to have issues."

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Although the draft spending plan presented to council on Nov. 15 was balanced, an unexpected $65,000 drop in revenue pushed it into the red. The state Department of Transportation has reduced the amount of gasoline and diesel fuel taxes --- the "liquid fuels" money --- that will be returned to McKeesport.

In September, PennDOT told McKeesport officials that the city would receive about $504,000 in liquid fuels money, but this month, the state revised that amount down to roughly $438,000. Liquid fuels payments are based on the number of miles of road in a municipality and its population.

In a letter sent to the city Nov. 14, PennDOT noted that its September estimate was based on the city's 2000 U.S. Census population of 24,040; that population figure dropped to 19,731 in the 2010 census.

Other changes would restore the part-time positions of Palisades manager and emergency management coordinator and incorporate a $2,500 increase in the city's dues payment to Twin Rivers Council of Governments.

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In a related matter, according to McLaughlin's letter, the city will need to withdraw about $150,000 from its reserve to meet payroll and operating expenses this year.

Pittman said Wednesday that one of the firms that negotiated the deal between the Municipal Authority and the city is holding up the transfer of that money because of a dispute over its fee.

Mayor-elect Michael Cherepko, currently serving as president of council, is intervening in the dispute to get the money released, Pittman said.

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McLaughlin's letter cautions Cherepko and the city's two new council members that there is "little or no room for uncertainty" in McKeesport's budget.

"This budget, as all that have preceded it during my 11 years on council and one year as mayor, will be a challenge," McLaughlin wrote.

Still, he finds reasons to be optimistic, including two new retail stores on Walnut Street, the possible completion of a new shopping center at the intersection of Routes 48 and 148, and the new flyover ramp into the RIDC industrial park.

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In addition, McLaughlin's letter predicts that a state-mandated switch to payroll deduction for city wage taxes will dramatically improve the rate of collection and help stabilize the city's income.

The transition to a new wage-tax system and the need to invest the sewerage authority's payment makes the 2012 budget a "true work in progress," McLaughlin's message notes. "Successful implementation will take the help and cooperation of all of the elected officials to traverse what has become a globally trying time that affects us all," it says.

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You can download a list of line items in the city's 2012 budget. Please note that these numbers are part of a proposal which has since been changed. (PDF reader required.)

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