Category: News || By Jason Togyer

A simmering private dispute between the incoming mayor and the city administrator went public at the end of a council budget workshop Tuesday night.

City Administrator Dennis Pittman and Council President Mike Cherepko engaged in a shouting match over a $12,500 fee owed to an investment adviser, with Pittman charging that "somebody has been lying," and Cherepko accusing Pittman and retiring Mayor Regis McLaughlin of dragging their heels on something that's "not a big deal."

The public argument in city council chambers marred an otherwise routine session to fine-tune next year's $18 million budget, which includes no tax or fee increases. Cherepko will take office as mayor on Jan. 2.

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At issue is a payment --- originally $20,000, now dropped to $12,500 --- to The PFM Group of Philadelphia, which was appointed in August to provide a financial analysis of the $24 million deal between the city and the Municipal Authority of the City of McKeesport.

Under the deal, the sewerage authority pre-paid $24 million in debt owed to the city. After paying off about $10 million of its own debt, the city has $14 million to re-invest.

Pittman and McLaughlin say that $500,000 of that money is needed immediately to balance this year's budget and begin fiscal year 2012. They say that M&T Bank of Buffalo, N.Y., which is holding the money, will not allow the city to draw on the account until PFM is paid $12,500.

Following the meeting, McLaughlin told the Almanac that PFM is acting as a "custodian" for the account and said council erred by taking control of the money out of the hands of the mayor and city administrator and putting it with a third party.

"Why should we have to pay somebody else to move our own money?" McLaughlin said. "And in the meantime, it's sitting in an account that's earning zero interest. I'm not trying to do anything under the table --- I'm just trying to get things done."

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But Cherepko said PFM was brought in to provide a legal and financial analysis of the transaction, and to recommend an investment strategy. According to its website, PFM specializes in investments on behalf of governments and government agencies and has offices in more than 20 states. It also manages the Pennsylvania Local Government Investment Trust, or "PLGIT."

Rates posted at PLGIT's website indicate the trust is currently paying between 0.02 and 0.06 percent on investments. PLGIT's investments include state and federal government bonds and government-insured certificates of deposit.

In June, PFM reported to the federal Securities and Exchange Commission that it was managing $40.7 billion in assets, and providing consulting services for another $19.6 billion in securities, for state and local governments, non-profit corporations and pension funds.

In an interview last night, Cherepko said that PFM was recommended by John McShane of Philadelphia-based Boenning and Scattergood Inc., brokerage and bond counsel for the sewerage authority, and former bond counsel for the city. The minutes of the August council meeting include discussion of PFM's involvement, and note that the company would be holding the city's funds in an escrow account. (PDF file)

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"PFM is the best of the best," Cherepko said. "They did a third-party analysis, and their rate to do the analysis was originally $20,000. They've cut it to $12,500. (Pittman and McLaughlin) are making this $12,500 into a problem, when it's not."

The city administration could access the money immediately by signing the agreement with PFM, Cherepko said. If necessary, he said, council will consider taking another vote directing the administration to approve the payment to PFM.

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A main point of contention between the outgoing administration and Cherepko appears to center on the city's strategy for investing the proceeds of the deal with the sewerage authority. McLaughlin and Pittman have endorsed a plan that they argue would yield about 2 percent annually through 2015, and enable the city to retire another $10 million in debt by 2016.

"This investment decision --- and how we balance this budget --- is probably the single most important decision this city faces," Pittman said Tuesday.

Cherepko said Tuesday night the proposal is "not an option" because it uses non-government insured investments, including, he said, mortgage-backed securities. "You've got to be with someone you can trust," he said. "I am not going to sit over there and gamble with the taxpayers' money."

He told the Almanac last night that he is leaning toward an investment strategy endorsed by PFM, which would have lower yields but be safer.

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Several of Cherepko's colleagues on council said Tuesday that the plan endorsed by McLaughlin and Pittman at least deserves a fair public discussion. "I really think we should acknowledge these other proposals," Councilman Darryl Segina said. "I think we should ask at least two or three other firms in the best interest of the city of McKeesport."

"At least let them present the proposal," Councilman A.J. Tedesco Jr. said. "At least let us see the proposal."

Council is expected to vote on the budget at its next meeting Dec. 7. The regular council workshop is slated for Dec. 6. Both meetings are open to the public.