The city’s proposed 2015 budget includes a new contract with police officers and a potential tax hike, and it depends heavily on an expected bond issue for the Centre City project.

City council Thursday night approved an initial reading of its 2015 budget. It must approve a final reading next month.

The proposed $8.5 million budget is about $800,000 more than the current budget, with much of the additional expenses for employee salaries and benefits.

Mayor Tom Donaldson announced at the meeting the city has an agreement with the Fraternal Order of Police union, which represents its 23 police officers.

The deal will span January 2015 through December 2017.

However, Donaldson did not disclose much detail on the new deal. The mayor said he was sending the final version of the contract to the union before releasing it to the public.

“They get their version first,” he said.

Donaldson said officers will receive a 2.5 percent increase in pay during the first year of the deal. He added new employees will pay more for health insurance and would have less vacation time.

The police department’s expenses in the 2015 budget are up by about $100,000 from this year. But that is less than the nearly $300,000 increase initially proposed by the mayor earlier this month.

Wages for the union police officers will be $1.3 million, up from $1.2 million.

The union also agreed in the contract to allow for the hiring of part-time officers, which Donaldson said could be used to help control overtime costs.

“The union was gracious enough to agree to giving us the option to use part-time police officers,” Donaldson said.

The budget includes about $36,000 for salaries of part-time officers.

Council hopes to reach agreements with the unions representing firefighters and nonuniformed workers by the end of the year, when their contracts expire.

“That’s our goal,” said Councilman Kathy Kline.

The city entered into arbitration with its three unions after failing to finalize deals the last time contracts expired in 2011. It took the city more than 2 years to reach an agreement with its firefighter union.

The city used estimated 2.5 percent salary increases to estimate its proposed budget.

Salaries for the 18 union firefighters also are expected to increase by about $100,000 from the current budget, increasing from about $900,000 to $1 million.

The city plans for many of its other expenses to increase by varying amounts from the 2014 budget.

“The problem is the cost of doing business is increasing, but revenue is staying flat,” Donaldson said.

Bond issue to help

A proposed bond issue to pay for the proposed 225-lot parking garage is included in the budget and is a key part in balancing the city’s increased expenses.

Council hopes to pay for the roughly $4.4 million parking garage through a PNC Bank bond issue. The city also would take over the parking authority’s current debt and add it into the bond, which would total about $5.8 million.

The city is in the process of reaffirming its credit rating for the bond, and expects the process to be done by February.

The city would be required to only make interest payments on the bond for at least the first year of the issue.

The interest-only payments will allow the proposed parking garage to be built and begin generating revenue before it starts to be paid off.

The Centre City project also includes a Rite Aid Pharmacy set to open Dec. 4 on Main Street and a proposed Marriott Springhill Suites hotel.

The city also is looking to add the costs of two flood control projects to the bond to eliminate a proposed tax hike for next year.

The city includes a hike to its debt service tax in the 2015 budget. Council is proposing to raise the tax from 6.25 mills to 10 mills to pay for the West New Castle Street Bridge and Sullivan Run projects.

The hike will bring in about $240,000 in revenue and would cost the average homeowner about $50 more per year.

The increase would take the current debt service revenue of $411,000 up to about $650,000. The debt service tax is one part of the city’s real estate tax. Total tax millage for the city is to be 42.5 mills next year, up from 38.75 mills now.

By adding the expense of the projects to the bond issue, the city could reduce the amount it would need to raise in taxes.

“We’re still exploring our options with it,” said Councilman Cheri Readie.

The city has until the end of the year to figure out if it can incorporate the projects into the bond issue.

Parking kiosks sought

The city also hopes the cost of new parking kiosks can be included in the bond issue. The move would eliminate the need for metered parking.

“We’ll have to see how much is left over from the parking garage,” Donaldson said about paying for the kiosks.

Donaldson offered no specifics during the meeting on the plan, but said afterward that a $147,000 projected revenue stream from “sales of fixed assets” in the budget refers to expected selling of the city’s parking meters.

“There’s somebody out there who will buy them,” he said. “If we go to automated parking with kiosks, we won’t need the meters anymore.”

Donaldson said he hopes the city will be able to complete the transition away from metered parking during 2015, but admitted it will be a challenge.

“We’re hopeful it can be done,” he said. “We had to set the bar high.”

The city will get new revenue from taking over the parking authority’s debt, which would be rolled into the bond issue.

The authority has been paying $212,000 per year on its debt service. The city will need to spend about $155,000 on the new bond’s interest payment.

It’ll leave the city with about $60,000 in extra parking revenue to work with until principal payments are due in future years.

Council will depend on a $750,000 tax revenue anticipation note to keep the city afloat during the first couple months of the year. The city uses the loan to pay its bills until tax revenue begins to come in April.

The city increased the amount of the loan from $600,000, which it has borrowed the past couple years. The city had borrowed as much as $1 million in the past.

“We don’t want to ever go that high again,” Kline said.

Another expense comes in electricity costs, which increased to $210,000 from $105,000. The city used state liquid fuels tax money to pay for half of its electrical costs this year.

Kline said she was not thrilled with the new budget, but said the city did not have many options.

“I don’t know if I feel good about this budget, but it is the best we can come up with at this time,” she said. “I know everyone has put a lot of work into it.”

Readie said it was a difficult budget to balance.

“This is a bare bones budget,” she said. “It was an extremely hard budget this year.”