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July 30, 2012 | By | Posted in Legislature

Debt-ridden Harrisburg to see Senate panel probe

The city of Harrisburg is home to the Pennsylvania State Capitol Complex. It's also one of the commonwealth's most financially distressed municipalities.

By Melissa Daniels | PA Independent

HARRISBURG — Lawmakers will explore whether Harrisburg officials obeyed the law when the city ratcheted up hundreds of millions in debt at the taxpayer’s expense.

The Senate Local Government Committee will hold a public hearing on Aug. 29, zeroing in on the financial decisions behind Harrisburg’s debt-laden incinerator project.

The city, in its efforts to retrofit a waste-to-energy plant, incurred more than $300 million in debt during the past decade, a juggernaut behind why the commonwealth’s capital is on the list of financially distressed municipalities.

Committee chairman and state Sen. John Eichelberger, R-Blair, said that in this case, officials might not have followed state borrowing laws, such as one that prohibits municipalities from using service-providing authorities as profit drivers, which may have happened with the Harrisburg Authority under former Mayor Stephen Reed.

“There shouldn’t be any kind of profit made with an authority, particularly so that another entity like a city can take money out of that, and that seems to be a part of the problem here,” he said.

Or, the laws were not clear enough to dictate responsible bargaining, he added.

Sen. John Eichelberger

“You’re trying to help the ratepayers in the authority and the taxpayers in the county and in the city, and adding to their debt load? I can’t see where that’s a good thing for the people that live in that area,” Eichelberger said.

Eichelberger said, to his knowledge, the hearing will mark the state’s first active investigation into the incinerator project.

The panel will examine how the debt of a municipal authority — in this case, the Harrisburg Authority — is tied to the financial distress of a city. After the hearing, the committee could craft legislation to prevent future infringements, such as creating a new approval process for borrowing money for projects or limiting the types of financing allowed when bonding a project.

Eichelberger said given the amount of the incinerator’s debt, Harrisburg officials shouldn’t have been able to take on more debt. In 2003, the incinerator carried more than $104 million worth of debt when an additional $125 million was tacked on from the retrofit project, according to a January audit.

“In each borrowing, people guaranteed in writing (that) the incinerator, on its own, would have enough revenue to pay the operating costs and the debt that they were incurring at the time,” Eichelberger said. “They had some very unusual situations throughout the history of this.”

He also said investigations will include a cursory review of the state Department of Community and Economic Development, which is charged with signing off on bonded projects like those used for the incinerator.

The hearing follows an independent audit released in January questioning the approval and financing process for the incinerator project from 2003 through 2007. Among the nine core findings in the audit were:

  • Officials went ahead with the project despite knowing the incinerator would not generate enough revenue to cover expenses;
  • Financing included unnecessarily complex borrowing, such as multiple swaps that were apparently initiated for short-term gains;
  • Funding for the incinerator was fraught with risky borrowing behavior, including the Harrisburg Authority paying multiple guarantee fees or insurance premiums to the city of Harrisburg and Dauphin County;
  • Conflict of interest issues between professionals contracted to work on the project and city officials occurred.

A list of who will testify at August public hearing is not yet available. But the hearing could be the first of many, according to a news release from Eichelberger’s office.

The incinerator debt played a role in driving Harrisburg to financial ruin, as the state declared the city distressed under Act 47 in fall 2010. The classification requires municipalities to come up with a debt restructuring and financial recovery plan under state review.

But Harrisburg officials couldn’t agree on a recovery plan. In fall 2011, the state passed a law allowing a Declaration of Fiscal Emergency for financially distressed cities that fail to adopt a recovery plan, and created Harrisburg’s Office of the Receiver.

The city’s first receiver, David Unkovic, resigned earlier this year.

A May presentation from Harrisburg’s current receiver, Maj. Gen. William Lynch, called the incinerator project “the biggest issue to face” out of the city’s financial issues, amidst structural debt and management concerns.

The city is exploring a sale of its assets to help pay off its debt, including the incinerator. State law prohibits the city from filing bankruptcy, though that provision will expire in November.

Statewide, 21 municipalities fall under Act 47, including the city of Scranton.

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Melissa Daniels is a reporter for PA Independent. She can be reached at 717-350-0962 or Melissa@PAIndependent.com

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