Arnold manager: No tax increase needed to cover deficit from underfunded pension

Various cost savings will help Arnold absorb a 40% increase in its pension costs while avoiding a property tax increase, City Manager Mario Bellavia said.

At a council meeting Tuesday, Bellavia said the increased pension obligation would create a deficit in the city’s budget that would need a property tax hike to cover.

Arnold’s property tax rate is 43.5 mills, the highest in Westmoreland County, according to county data.

But by Friday, Bellavia said he had balanced the city’s roughly $4.4 million budget without a tax increase.

Bellavia said the city was told its pension was underfunded, and, as a result, its minimum obligation was increasing from about $350,000 a year to $490,000.

With the state covering 30% of the cost, Arnold’s share rises from about $245,000 to $343,000 — an increase of nearly $100,000.

A variety of cost savings will help counter that increase, Bellavia said. He cited new liability insurance that will save $37,000 and $24,000 in savings on electricity from a reduced supplier rate and from installing LED lights on Drey Street and Fifth Avenue.

Although he didn’t provide specific dollar amounts, Bellavia said a series of grants and reimbursements helped cover some salary costs, and using less water this year has saved the city money on its sewage bill.

Bellavia said the city’s revenues have not been affected much by the pandemic, and he is projecting them to remain flat in 2021.

Refinancing of debt considered

Bellavia said he is not including a potential $50,000 annual savings the city could see from a debt refinancing.

City officials are exploring refinancing about $1.3 million of its debt, what’s left to pay on a 25-year, $1.7 million borrowing from 2006.

Those bonds carried interest rates of 5% to 6%, Bellavia said. Rates now are around 2.5%.

“It’s a very good move for our city,” said Councilman George Hawdon, council’s director of accounting and finance. “It saves money and the cost is minimal. It’s something that we have to take advantage of.

“Any loan taken out in 2006 should be refinanced,” he said. “It’s such a different interest rate climate now.”

Refinancing the debt would extend it by 10 years, from 2031 to 2041.

Doing that would put the debt on the same timeframe as a $1.8 million, 20-year state loan the city had to take out to pay for mandated sewage separation work, Hawdon said.

But to do that, Hawdon said, the city would have to certify that the things the loan paid for will last for the additional decade.

Hawdon said the money was spent on various projects, including road and street improvements, a stormwater project and buying equipment including a street sweeper and garbage truck. Those items were given a useful life to 2031 to match the term of the borrowing.

Hawdon said officials believe those items can be certified to have another 10 years of life.

Hawdon said the city is now looking into more detail on what was bought with the money and looking for the professional services to carry out a refinancing. He said officials would like to have it done by January.

“Much of it depends on how quickly people get back to us,” he said.