The Harrisburg Authority last month issued a damning report on the city’s bungled incinerator, criticizing the administration of former mayor Stephen Reed for pushing through a failing project at any cost, one that eventually would land the city in bankruptcy court.
The report’s charges are many, including conflicts of interest, lack of due diligence, self-serving dealings and recklessness. The report analyzes the most recent incinerator upgrades, beginning more than a decade ago, when the city and the authority selected Barlow Projects, Inc, as the lead contractor to fix the broken facility.
“The outcome of the retrofit, including the current debt crisis related to the city, reflects the accumulated effects of bad decisions on critical project issues, ranging from contractor selection at the outset to the $60 million in debt taken on in 2007 when the facility was still incomplete and not fully operational,” the report states. “In some cases, the authority, the city and the county took strained positions on state law regarding municipal debt financing and other issues to allow the retrofit and related financings to proceed.”
Perhaps the most troubling, the report states that numerous parties has significant financial interest in continuing to issue bonds for the incinerator (also known as the resource recovery facility or RRF), while knowing its operations could never service those bonds.
Among the entities that benefited, says the report, were the administration, City Council, Dauphin County and the many lawyers, advisers and financial companies involved.
“The city, the county and FSA (insurer Financial Security Assurance) provided guarantees or insurance on some (as to the county and FSA) or all (as to the city) of the facility’s debt,” the report states. “They received significant guarantee fees or insurance premiums for doing so, knowing the risks associated with default, both in 2003 and even more so in 2007, when all evidence pointed to the RRF’s inability to service existing and contemplated debt upon completion.”
Following the report’s release, City Council introduced a resolution asking the U.S. Department of Justice to conduct an investigation into how the incinerator was financed.
“This entire process has been about greed,” charged Councilman Brad Koplinski. “No one got paid unless these deals went through. They said and did whatever it took to close the deal and get their paychecks. In the end, they left the people of the city holding the bag.”
The report takes a step-by-step approach to describe how the incinerator disaster unfolded.
The story starts in the late 1990s, when the city and authority, frustrated by repeated breakdowns and EPA violations, needed to fix the long-troubled facility, which had never worked properly since its first firing in the early 1970s.
After learning about Barlow from a trade magazine article, the city and authority eventually hired the company to get the incinerator running smoothly and to expand capacity, as the county also wanted a place to send its trash.
Barlow promised that the upgrade would cost about $45 million, an amount that officials, at first, hoped could be paid for by fees from increased trash flows. The outcome was far different, says the report:
- Barlow was hired on a sole-source basis, without competitive bidding or consideration of other technologies.
- Barlow’s cost and revenue projections were never tested or confirmed.
- Barlow proceeded without a performance bond, which typically guarantees the quality of large-scale construction projects.
- Barlow’s incinerator technology, unproven for a facility the size of the RRF, never worked properly.
Eventually, Barlow went bankrupt and the project failed, requiring another contractor–and yet more money–to finish it.
In addition, the report states, city and authority officials acted recklessly as they tried desperately to save the project, accumulating more and more debt, with fees from bond issuances being diverted to other purposes.
“Those interviewed … confirmed that the city made it a practice of collecting these fees for conduit issues for utilities to generate money for the city’s general fund,” the report states. “The city guarantees fees related to the RRF historically appear to be related to the amount needed to fill a city general fund or RRF budget gap.”
Also, the Reed administration attempted to get council support for a 2003 bond issue by council members a “special projects fund,” also derived from bond fees, says the report. The report adds that it’s unclear whether the fund was ever established.
Today, the incinerator is some $317 million in debt, and the authority and the city both have defaulted on their incinerator bonds. The result has been an unprecedented financial crisis in Harrisburg, including insolvency, a state takeover and a bankruptcy filing. As a result, Harrisburg soon will have to sell its most treasured assets to help pay off its creditors.
