Pa. Senate Weighs Bills to Prevent Future Harrisburgs

Two bills intended to improve oversight of municipal bond financings and prevent another Harrisburg-type fiasco will go to the Pennsylvania Senate during the fall session.

The bills, which the Senate’s local government committee advanced, evolved from public hearings last year on the capital city’s accumulation of about $350 million of debt that it cannot pay, mostly tied to financing overruns from an incinerator retrofit project. The city guaranteed the debt.

The original bond issue for the project was $30 million.

The hearings “brought to light lots of loopholes and creative ways to get around the debt limits and the filing process with DCED,” said Lee Derr, director of the local government committee and counsel in the Harrisburg office of committee chairman John Eichelberger, R-Blair Township.

According to Derr, one bill would empower the state Department of Community and Economic Development to review debt issues by municipalities and authorities earlier in the process and more rigorously.

“The changes in the bill probably wouldn’t affect the 95 percent of the projects where you have your standard water and sewer and you can calculate the fees and you can calculate revenue, but in those projects where questionable technology is involved, or other questionable items, this would empower DECD to request more information,” said Derr.

Barlow Projects Inc. of Colorado, the original lead contractor for the Harrisburg incinerator project, touted its state-of-the-art technology. But according to a forensic audit the Harrisburg Authority public works agency released in January 2012, that technology had never used on such a large scale as Harrisburg’s. Technical problems ensued, leading to cost overruns and continued bond financing.

Harrisburg is now under a state-appointed receiver, retired Air Force General William Lynch, and is negotiating to sell the incinerator to the Lancaster Solid Waste Management Authority.

The Securities and Exchange Commission two months ago charged Harrisburg with securities fraud for lying about its deteriorating finances. Harrisburg settled with the SEC by agreeing to fully disclose financial information in the future. The agreement involved no fines or prison time.

A companion bill would require municipal authorities to limit their use of borrowed money to its originally stated purpose. It is aimed to prevent a Harrisburg-type circumvention of the state debt limit laws in which officials certified that the trash-to-energy project was “self-liquidating,” or sustained by revenues from tipping fees and sales of electricity.

The committee’s Democratic leader, John Blake of Archibald, said the new bills would benefit municipalities throughout Pennsylvania. “They’re for all our cities,” he said.

Separate bills would ban municipalities from engaging in complex derivative transactions known as swaps. According to an aide to state Rob Teplitz, D-Susquehanna Township, the Senate may hold hearings on those bills over the summer.

Teplitz, whose district includes parts of Harrisburg’s county, Dauphin, has filed swap-oriented legislation along with Sen. Mike Folmer, R-Lebanon City.

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