In 2013, Jim Warner saw a big opportunity—one that required a big risk.
He led his organization, the Lancaster County Solid Waste Management Authority, in making a major acquisition—the financially distressed Harrisburg incinerator. Since then, LCSWMA has invested millions to upgrade the plant and the property, transforming it into the Susquehanna Resource Management Complex, a state-of-the-art waste-to-energy complex.
At year-end, Warner plans to retire as LCSWMA’s long-serving CEO. So, we asked him to reflect on his past and on the career-defining decision to acquire the debt-ridden Harrisburg facility. This interview has been edited for clarity and space.
TheBurg: How did you get into this industry?
Warner: I got out of graduate school in 1984 from Ship [Shippensburg University] with a degree in environmental science. I got a job in Gloucester County (N.J.) as one of the first county recycling coordinators in America.
TheBurg: What year was that?
Warner: That was 1985, when the “garbage crisis” first manifested itself, in New Jersey. So, government responded by saying, “Well, maybe we should recycle part of the waste stream, and we wouldn’t have as big of a problem.” So, counties in the mid-‘80s began hiring . . . professionals to manage and implement recycling programs in a region or a county. Then Lancaster became the first county [in Pennsylvania] to write a comprehensive waste management plan, in 1986.
TheBurg: Where were you from originally?
Warner: I grew up in Lebanon, Pa.
TheBurg: So, you were coming back home?
Warner: Not only that. I went to Millersville for my undergrad and, actually, most of my best friends were from Lancaster. My senior year, I lived in downtown Lancaster. So, yeah, I was coming back. I’ve been here for basically 31 years.
TheBurg: So you became Lancaster County’s recycling coordinator?
Warner: I did. I was like the third or fourth employee in the office. And, during that time, we borrowed a lot of money and built a waste-to-energy plant, built the first double-lined landfill in 1988 and then implemented a recycling program. That year, July 1988, is when Pennsylvania passed their mandatory recycling law under Bob Casey’s administration.
So, I set up the recycling and hired an assistant or two. And my desire was to really get into the business component more. So, then, as we grew, I had a series of promotions and more responsibility until about 1994 or ‘95, when I was sort of the general manager. Then our executive director at the time made a pretty quick exit, and the board of directors decided that I was capable enough to manage the system as it was then, which was not nearly as complicated as it is now. So, as a young 38-year-old, I became executive director and, eventually, my title changed to CEO. The organization went from about $35 [million] to—I wouldn’t doubt if we did $90 million this year and 350,000 tons to 1 million. Some of that was organic, but a lot of it was strategic. Probably the biggest piece ever in that evolution was the acquisition of Harrisburg [incinerator], as far as a big chunk of business.
TheBurg: Let’s talk about Harrisburg then. Take me through the process of how you ended up buying the incinerator here.
Warner: It’s really interesting. As we had a growth spurt from the mid-‘90s to about 2005, we were growing at about 3½ percent per year. So, as we projected that out, it looked like we were going to run out of processing capacity in the Lancaster plant somewhere around 2010.
So, then a couple of things happened. That growth stopped suddenly in about 2007, with the recession. We started evaluating—how would we expand the Lancaster facility?
We started looking at—what would be the cost of doing that expansion? And we had a good model, in that two very similar plants in Florida—one in Hillsborough County and one Lee County—had just gone through that process, where they built a fourth unit. Each one added a 600-ton unit, and their plants went from 1,200 to 1,800 tons per day. And each of the projects cost about $135 million. So, we started modeling about $150 million, figuring we would come a decade after them.
When you do that, there’s sort of a Catch-22. If you put in a 600-ton-per-day unit, that’s 180,000 tons per year of waste going through that unit. The problem is that, when you build a unit, you don’t necessarily have 180,000 tons of waste coming in the day you open it because, if you had, you would have been landfilling all that waste until the day you open the unit. And we never wanted to get into that, where we grew so much but we waited until we could fill the unit with Lancaster County waste. The price to pay would have been too much landfilling of waste. It would have eaten up years of landfill capacity.
So, the other option is, maybe wait until you have 20,000 or 30,000 tons, and then you go and get the other 150,000. And getting the other 150,000 and bringing it in, would have been very difficult to do. And the price we would have gotten for what we call spot trash in the industry wouldn’t have supported the cost of adding a unit like that. We bought some time then because of the Great Recession, and, meanwhile, the timing of Harrisburg’s distress was progressing.
Now, at the time, the [Harrisburg] receiver [William Lynch]—he’s trying to get the highest price possible because there’s $370 million of indebtedness on the plant. [He] wanted an inflated price for the asset, which would be supported by guaranteed waste streams at above-market rates for 20 years, with put-or-pays—guaranteed amount to LCSWMA every year—in exchange for an over-inflated price for the asset. He needed $130 million because they could only value the parking [asset] at $240 million. So, those were the two assets they had: 130 for this, 240 for that.
So, all along, we had asked them—what do you want paid? Because we could make it $100 million, we could make it $80 million, we could make it $130 million. But then here’s what your tipping fees are going to be over 20 years, and the guarantee levels change the valuation. What were they willing to accept as their tipping fee? So, Dauphin County, I think we started at $85, and the city started at $190. But the market is $50, $60. And there was a lot of push/pull there between the city and the county. If you had a blended rate, the city and the county would both be paying $120 or something like that. But that wasn’t going to happen because the county didn’t feel they had as much responsibility for the mess as the city did.
But we tried to stay out of that. We were just coming in and trying to make the asset work for us and, if we could help solve this neighboring problem, that would be good, too.
TheBurg: It seemed to me, at the time, that everything seemed to align together in a serendipitous way.
Warner: If we hadn’t come in, I don’t know how the city would have avoided bankruptcy.
I think the first number we gave them was like $47 million, and people had the impression we were low-balling, but we were giving an at-market price without the guarantees. But, when all of a sudden, they wanted $130 million, then the tipping fees were going to go way up, and the guarantees had to be made on the revenue because we’re paying 20 years forward. We gave them $130 million one Monday morning—Dec. 23, 2013—on the guarantee that they’re going to be paying us some rate times some amount of tons every year for 20 years. And we can never bring that risk to our doorstep, because they got their over-inflated price that morning.
Our risk was that we had to continue to make the asset function for those 20 years. For that, we were relying on our own expertise and know-how of being in the business, and that was a risk we were willing to take on.
TheBurg: So, you bought this thing. What came next?
Warner: I think we’ve put about $22 million in, in the first four years. We added some things that we didn’t think we were going to—we could get by. And there are other things that we didn’t do that don’t need done. This building we’re sitting in, we call it the TMA building, which stands for Transfer, Maintenance and Administration. So, we built this bigger than we had thought. We built 23,000 square feet. We have two transfer bays.
And the reason we made it much more robust than we originally thought was because, the more we thought about it—our arrangement with the city of Harrisburg and Dauphin County is that we’re going to take your waste for the next 20 years. What happens if the main asset doesn’t function? Believe it or not, just in March, we went four days without a unit working because, well, everything seemed to go wrong for four consecutive days. But all the waste came here, the trucks dumped in the transfer building, and we transferred it all to our Lancaster waste facility.
When THA (the Harrisburg Authority) had the plant come down, they would just say, “Take your waste elsewhere. We’re not open.” We, first of all, can’t do that. But, secondly, we don’t want to do that because we want that revenue. With our assets, we can manage it, so that’s why we can do that.
So, this building was $5 million. We just finished a $4 million cooling tower. We thought we could put a Band-Aid on the old tower every five years. But we just decided to abandon the cooling tower. The cooling tower here was built for like a shopping center, not a power plant. So, we put in a real cooling tower. So, now we don’t have to worry about whether, over the next 20 years, it’s going to work. Then we’ve done all this site work. We changed the entrance from Cameron Street to 19th Street. We put in a new scale house. We paved the roads, new fencing, landscaping. All that was a couple million dollars. Then, inside the plant itself, we’ve upgraded, done things to the boilers and the grates, and we’re continuing to do that. So, we’ve invested about $5 million more than we thought we would during the first four years. But now we’ve made the big investments, unless something drastic would go wrong.
TheBurg: What does your future hold?
Warner: Getting back to here [the Harrisburg facility]—I could not be more pleased. This was not easy. This challenged our staff. Our board took a leap of faith with me driving this. I think it’s proved out.
The first four years, I think, will be the hardest. That’s when we had to do the most overhaul, prove ourselves in the community. People drive in here and drive out in 12 minutes. They use to have to wait in line for an hour and a half. So, the customer service has increased. We’ve taken this facility, which was substandard, and we’ve taken it—and I knew we could do this—we’ve put it to our standard, LCSWMA’s standard—and our standards are the best in the industry. So, we had a long way to go there. I think we’ve done well. The mayor, I think, is pretty pleased. I know that Public Works loves the service they get here. We don’t have any griping. When you get no griping, you know you’re doing things right.
With me—our board, my departure has been well planned. For years, I’ve been working with the board with timing. I think the board has made a wise move to promote from within, just like they took a little chance with me. They hired our current chief operating officer, Bob Zorbaugh. It’s his group that runs this and makes it function. We have an extremely strong executive team of six that Bob’s coming out of. He knows the business inside and out. It will take some time for people to get to know Bob, but he’ll do an excellent job. He knows what it is to make facilities function successfully.
To learn more about the Lancaster County Solid Waste Management Authority, visit www.lcswma.org.