Ex-Harrisburg Mayor Deflects Blame for Incinerator Fiasco

HARRISBURG, Pa. -- Harrisburg’s former mayor blamed initially low cost estimates for incinerator-financing debt that ballooned into a $340 million fiasco and fiscal crisis in Pennsylvania’s capital city.

“The original cost estimate is the genesis of all of this,” said Stephen Reed, the city’s chief executive from 1982 to 2010 when the incinerator was planned and built. He spoke Thursday before a state Senate local government committee during a hearing on financing overruns to the trash-burner-to-energy project.

“The cost estimate was key, because all the financing decisions flowed from it. It had a cascading adverse effect on the debt history,” he said.

“At that time, there was no information in front of us that said, ‘These numbers do not work,’” said Reed, who lost his seat to current Mayor Linda Thompson in 2010.

Committee members pressed Reed about continued financings in the face of red flags about the project’s viability; about the inability of the initial contractor, Colorado-based engineering firm Barlow Projects, to qualify for a performance bond to cover construction costs; and the numerous layers of credit enhancement, or “sweeteners,” to the bond deals.

 “We were told, and [Dauphin] County and the Harrisburg Authority were told the same thing, that if you have guarantees from a number of government bodies and jurisdictions, and you have bond insurance on top of it, you would get a fairly good rate on the market as opposed to a stand-alone transaction,” Reed said.

The guarantees have left Harrisburg broke and under the watch of a state receiver. The city may run out of cash by the end of the year.

“I keep hearing that nobody did anything wrong, and if nobody did anything wrong, how did the city, [Dauphin] County and Harrisburg Authority wind up with so much debt?,” Sen. Mike Folmer, R-Lebanon, asked repeatedly throughout the day.

The Harrisburg Authority, a public-works agency, runs the incinerator.

A forensic audit the Harrisburg Authority released in January, which the committee used as the basis for the hearings, said that all 17 financial projections done in 2007, for that year through 2011, said the incinerator would not generate enough income to service existing debt, let alone new debt.

Earlier in the afternoon session, a  former member of the Harrisburg Authority’s board blamed what he called “a culture of corruption” for the escalating debt.

Eric Papenfuse, who resigned from the board in 2007 after it issued a $60 million financing despite warning signs that existing debt was not sustainable, said authority officials falsely certified that the trash-burner retrofit bonds were self-liquidating, in order to circumvent limits under the state’s debt act.

Papenfuse said he had asked then-attorney general Tom Corbett, now the state’s governor, to investigate the authority’s 2007 incinerator borrowings. Part of the borrowing included a $25 million loan from Covanta Energy to finish the project that Barlow had started.

“They encouraged me to stay out,” said Papenfuse, who cited pressure from the authority’s chairman at the time, James Ellison. “They said if I kept pushing, I’d get prosecuted for obstruction of justice by the U.S. attorney.”

He also said his requests to the state Department of Community and Economic Development to decertify the self-liquidating status of the bonds fell on deaf ears. Papenfuse even accused retired DECD lawyer Bernadette Barratini of conflict of interest, citing Barratini’s employment with law firm Mette Evans & Woodside after she retired from the state. Mette Evans worked on some of the incinerator financings.

That drew an angry Barratini, who had testified moments earlier, back to the table.

“I really resent that,” she said.

“The only income I made was my salary from the commonwealth. I never made money on the side,” said Barratini, who insisted that Mette Evans hired her well after she retired last year.

Former Harrisburg Authority chairman Fred Clark said working for Reynolds Construction Co., a local firm that was on the incinerator project, presented no conflict.

“I received no gifts from Reynolds,” he said.

“There was a rush to get a deal done,” said current Harrisburg Authority board member William Cluck, who spoke as a private citizen. “We had people wedded to each other and nobody said ‘Mr. Mayor, we can’t do this.’”

According to committee Chairman John Eichelberger, R-Blair Township, the panel will question financial advisors at a follow-up meeting on Oct. 29.

For reprint and licensing requests for this article, click here.
Bankruptcy Pennsylvania
MORE FROM BOND BUYER