Tube City Almanac

May 17, 2011

Debt Reduction Would Cut City's Costs, Raise Credit Score

Category: News || By Jason Togyer

City officials are working on a plan to reduce McKeesport's debt load and increase its working capital.

Under the plan proposed by Mayor Regis McLaughlin and city Administrator Dennis Pittman, the city's sewerage authority would use an $18.4 million grant from the Pennsylvania Infrastructure Investment Authority, or PennVEST, to prepay debt owed to the city.

McKeesport, in turn, would pay off about $20 million of its own debts --- including some of the money borrowed in 2005 under former Mayor James Brewster's "Renaissance 2005" program.

John McShane, managing partner of the Pittsburgh-based investment firm Boenning & Scattergood, and Pittman are scheduled to present details of the plan to city council at a work session on May 31.

. . .

The city last year proposed refinancing some of its debt to lower its interest payments and close a $750,000 gap in this year's budget. But according to a memo sent by McLaughlin to city council this month, interest rates and market conditions "do not warrant that action at this time."

However, McLaughlin said, "if we could retire existing debt," the city's credit rating would improve and would save about $168,000 in annual insurance premiums on its bonds. In addition, it would boost the city's fund balance --- or financial reserves --- from $420,000 to $1 million, the mayor said.

PennVEST in April awarded the Municipal Authority of the City of McKeesport an $18.4 million grant and an $18.4 million loan to help pay for an estimated $53 million in improvements and expansion of its sewage treatment plant in the lower 10th Ward.

The work is necessary to bring the plant into compliance with federal and state clean water requirements related to stopping untreated sewage from overflowing into rivers during heavy rain storms. MACM plans to boost the system's treatment capacity from 11.5 million gallons per day to 56 million gallons per day.

The authority serves 62,000 people in the city, East McKeesport, Elizabeth Township, Glassport, Liberty, North Versailles Township Port Vue, White Oak and Versailles, and is taking over Duquesne and Dravosburg's systems.

. . .

The city in 2009 sold its sewerage system to the authority for $3 million plus $1.9 million annually for 20 years, and receives about $400,000 annually from the authority to pay debt service from a PennVEST loan previously used for sewer system improvements. Under McLaughlin's proposal, instead of receiving those payments annually, the authority would prepay those debts.

Besides allowing the city to save money on bond insurance premiums, lowering the outstanding debt from $30 million to $11 million would make it easier and less expensive to borrow money in the future, Pittman said.

One of the nation's largest bond-rating agencies, Standard & Poor's, currently puts the city's credit at AA+ and rates the city's outlook as "stable" and among the "top quality borrowers."

But S&P's biggest rival, Moody's Investors Service does not currently rate the city's creditworthiness. When Moody's last rated the city in 2008, its bonds were graded "Baa1," one of the agency's lowest investment-level scores and only two steps above "high risk" status.

. . .

City Estimating Share of Bridge Improvements: In other business, city officials expect to find out soon whether they'll still owe Allegheny County money for repairs to the Mansfield Bridge.

County officials have asked McKeesport to pay $150,000 and Glassport to pay $120,000 toward the upcoming three-year, $35 million reconstruction of the bridge that crosses the Monongahela River at Dravosburg. Under the terms of an agreement reached when the bridge was built in the early 1950s, the municipalities are responsible for the approach ramps at the south end of the span.

But the city has asked the state Department of Transportation to certify the exact amount of last year's repaving and reconstruction of Fifth Avenue between the bridge and Ramp Two. Once that number is known, the city will ask Allegheny County to use that number as a credit toward the Mansfield Bridge project, Pittman said.

If any money is left over, city council could vote to apply that credit to Glassport's share, Pittman said.

In 2009 McKeesport received a one-time $1 million grant from PennDOT to repair the city-owned road, which carries about 21,000 vehicles daily.

Feedback on “Debt Reduction Would Cut City's Costs, Raise Credit Score”

So if the city received a grant to help pay for the sewerage improvements, does that mean my bill will decrease from approximately twice what I pay for water service?

I find it ludicrous that the city believes I should pay twice as much to have water leave my residence as it costs to get there in the first place, and I will guarantee that less than half of the water I use during the summer actually goes down the drain, anyway.
John - May 18, 2011

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